In some situations, it may be necessary to obtain some form of guarantee or security for the supplier's performance. These can take a variety of forms. The two most common being:
- Financial: these are often provided by a bank or other financial institution and entitle the procuring entity to obtain a specified amount of money directly from the provider of the guarantee to cover the procuring entity's costs or other amounts due under the contract, should the supplier fail to perform its contractual obligations.
- Performance: in which a third party agrees to take responsibility for performing the contract when required to do so by the procuring entity, usually in the event of a default by the supplier.
Securities and guarantees are useful where significant amounts of money are involved or where an upfront substantial payment is to be made to the supplier prior to delivery and acceptance of the goods or services. They are also common where the supplier is a subsidiary - with the parent company providing the guarantee.
This is a complex area of law, and you should seek legal advice before seeking to claim on any form of security or guarantee.