Guaranteed on-site execution: ensuring delivery for your clients
The client wants a simple guarantee: "you deliver, otherwise I'm protected"
The performance guarantee ensures performance, not comfort.
In construction, the major risk for a client is not only the defect, but the non-execution: critical delay, abandonment, inability to complete.
For an SME that carries out work, the request for a performance guarantee is frequent, especially on structured projects or public contracts.
This guarantee, issued by a bank or insurer, serves to protect the customer if the company does not fulfill its obligations, according to the conditions of the text.
For SMEs, it is a tool for accessing the market, but also a financial and contractual commitment to be managed.
When properly calibrated, it reassures the customer without blocking cash flow.
Performance guarantee: a powerful safeguard, requiring careful framing.
True risk management takes place in the contract and the release.
A performance guarantee is a financial security issued for the benefit of a client, intended to secure the execution of a works contract.
It intervenes if the company fails to fulfill its obligations, under the conditions stipulated in the guarantee agreement.
As with other construction guarantees, it does not compensate the SME; it protects the client. For an SME, it is often essential for accessing structured markets, but it must be understood as a commitment that consumes financial resources and requires contractual discipline.
What a performance guarantee "covers" depends on the wording. Generally, it addresses situations of failure: non-completion, abandonment, or serious breach.
The beneficiary can then call on the guarantee to obtain an amount, enabling them to finance replacement measures, compensate for costs related to the failure, or secure a transition, as provided for.
The form of the guarantee matters: a first-demand guarantee is often simpler to call upon, while a conditional guarantee may require more evidence and substantive discussion.
Clients often favour mechanisms that are easy to mobilize, which increases the importance of negotiating the wording.
There are primarily five points of vigilance.
First, the definition of default: it must be aligned with termination clauses, project milestones, and essential obligations. A definition that is too vague opens the door to questionable claims.
Secondly, the conditions for appeal: required documents, notifications, possibility of remedy (time limit for remediation), and dispute mechanism. Thirdly, the duration: a guarantee without a clear release may remain active beyond the actual completion of the work.
Fourth, counter-guarantees and financial impacts: the issuer may require a line of credit, a deposit or a counter-guarantee, which reduces your ability to take on other projects.
Fifth, coordination with other guarantees: construction guarantee (defects), advance payment bond, etc. It is necessary to avoid accumulating redundant or inconsistent commitments.
Choosing the right level of performance guarantee is often dictated by the client, but an SME can influence the proportion and the wording. It is wise to ensure that the amount is consistent with the size of the contract and that the release is linked to clear milestones (acceptance, completion, acceptance report).
Next, warranty management must be integrated into site management: monitoring of amendments, documentation of stages, proof of conformity, and formal communication.
A useful mini-list to check is: type of guarantee (first demand or conditional), definition of default, call conditions and documents, duration and release, consistency with the main contract, and impact on your financial lines.
Mage & Associates can support you by analyzing the client's requirements, helping to clarify the risks associated with the guarantee agreement, and structuring a comprehensive system of guarantees and site insurance. The goal is to maintain market access without exposing the SME to the risk of poorly defined guarantees, and to manage the release of guarantees to preserve financial capacity throughout the course of projects.
Three risks covered by the idea of execution
And the points that need to be addressed in the guarantee text.
Non-completion or
abandoned construction site
If the company does not complete the work, the guarantee can be invoked according to the conditions.
It provides the client with financial security to undertake replacement measures or compensate for certain anticipated losses.
Major delays and contractual breaches
According to the text, the guarantee can be triggered in the event of a serious breach of obligations.
The definition of “failure” and the evidence required are crucial.
An SME must ensure that the wording is aligned with the main contract.
Security
financial
for the client
The client obtains protection without having to hold too much cash.
For SMEs, the challenge is to control the impact on their financial lines and to manage the release of the guarantee, once the conditions are met.
Market requiring a performance guarantee: discipline avoids appeals
Realistic fictional example, on a construction site in French-speaking Switzerland.
Realistic fictional example.
A construction SME in French-speaking Switzerland wins a contract for an institutional client, who requires a performance guarantee issued by an insurer.
The guarantee is payable on first demand and must remain valid until delivery. For the SME, the challenge is to never find itself in a situation of formal "default" that could trigger a claim.
During construction, a delay occurred due to the late delivery of a specific material. The client expressed concern and reminded the client of the performance guarantee.
The SME reacts methodically: updating the schedule, written communication, documented amendment, and proof of corrective actions.
The determining factor is contractual governance: everything that is agreed upon is formalized, and milestones are validated in writing.
The construction project is completed a few weeks behind schedule, but within a controlled contractual framework.
The acceptance is completed, the guarantee is released according to the conditions, and the SME preserves its financial capacity for a new project.
The operational lesson: guaranteed performance requires disciplined management. It's not insurance that protects SMEs, but the quality of the documentation, the schedule, and the amendments, which prevents calls and secures the client relationship.
