Bank Guarantees and Their Types

Formula used to assess contractor's overall score, incorporating Expertise & Experience (E), Financial Capacity (P) and Evaluation Coefficient (Ce).

The expertise and experience score is calculated by adding the scores of: Managers and employees (Ep), Works completed (Ew), and Contractor continuity (Ec).

It represents the contractor's financial capability to invest in and complete projects.

It determines the weighting applied to expertise and experience in the contractor evaluation formula.

It measures the combined expertise and experience of managers and employees based on their education, experience, and position (CEO, board, or regular employees).

It measures the contractor's financial strength and ability to meet its short-term financial obligations. Calculated as: Current liabilities - Current assets.

It indicates the contractor's ability to fulfill long-term contractual obligations. Calculated as: Long-term liabilities - Long-term assets.

This criteria highlights the importance of local experience for project implementation.

A binding commitment from a bank to pay a specified amount if a third party fails to fulfill their obligations.

The entity that receives the guarantee and is entitled to claim payment if the guaranteed obligation is not fulfilled.

The party that is responsible for performing the guaranteed obligation, usually the seller or contractor.

A guarantee issued directly by a bank to the beneficiary, without going through an intermediary bank.

A guarantee issued by the guarantor bank to another bank (intermediary bank), instructing them to issue the original guarantee to the beneficiary.

The bank that issues the guarantee directly to the beneficiary.

A bank that issues the original guarantee to the beneficiary on behalf of the guaranteeing bank.

A guarantee issued by the guaranteeing bank to the intermediary bank, confirming their commitment to cover the guaranteed obligation.

A financial guarantee provided by the contractor to the employer, ensuring the contractor's commitment to fulfill their contractual obligations.

Calculated at 5-10% of the contract amount, this bond safeguards the employer in case the contractor defaults on the project.

Issued by a bank approved by the employer, this bond provides financial security to the employer.

The performance bond remains valid until one month after the final payment certificate is submitted. It ensures the contractor fulfills their contractual obligations and protects the employer in case of default.

An advance payment provided by the employer to the contractor to bolster the contractor's financial standing and enable them to efficiently execute the project.

Based on specific instructions and contractual provisions, the advance payment amount is typically between 5% and 25% of the total contract sum.

The advance payment is divided into three parts, progressively paid out as the contractor meets specific project milestones.

A guarantee letter provided by the contractor to the employer, securing the advance payment without any legal deductions.

A type of EPC contract where the contractor is responsible for project commissioning, ensuring it meets operational requirements and standards. This includes testing, inspection, and verification.

This contract type involves the contractor managing all phases of a project, including design, procurement, construction, and even commissioning.

In this EPC contract, the contractor assumes the financial burden of the project, financing all costs related to design, construction, and other project expenses.

This type of EPC contract involves the contractor bringing in an investor to finance the project. The contractor is not directly responsible for financing, but helps secure funding.

In EPC contracts, the responsibility for financing the project usually falls on the employer or the host country.

This occurs when the employer or host country lacks sufficient capital to finance the project, leading to the contractor taking on the responsibility.

The contractor handles financial responsibilities through payments or revenue-sharing agreements with the owner.

The contractor secures financing by bringing in an investor or by using their existing financial resources.

A contract where the contractor agrees to complete a defined project for a fixed price, regardless of the actual cost incurred. This means the contractor assumes the risk of cost overruns.

This method ensures a clear and transparent budget, as the cost is fixed before the project starts.

A detailed design is crucial before a fixed-price contract can be used. Without a defined scope, accurate cost estimation is impossible.

This method is suitable for projects with well-defined scopes and minimal uncertainties.

If the actual project cost exceeds the agreed-upon price, the contractor will face financial losses. This makes the contractor assume a higher risk compared to other contract types.

The employer must clearly define the project specifications and requirements before entering a fixed-price contract. Changes during construction are not allowed.

This contract is a common choice for standard buildings such as warehouses, factories, and mass housing, where the design and construction are relatively straightforward.

Contractors need to accurately estimate all project costs upfront, including material, labor, and overhead expenses, to ensure profitability.

The phase where the project is put into action, including daily management, maintenance, repairs, and supplying consumables.

The transfer of the completed project from the contractor to the client (usually the government). This includes all facilities, equipment, and licenses.

A modern financing method where the private sector builds, operates, then transfers a project to the government after a set period.

The main goal of BOT contracts is to reduce the financial and operational burdens on the government by involving private sector resources.

BOT contracts encourage partnerships between public entities (governments) and private companies.

BOT contracts significantly reduce the cost and operational burden on the government, allowing them to focus on other priorities.

Turkey was the first country to use BOT contracts for large infrastructure projects, notably power plants.

BOT contracts are gaining popularity in developing countries due to their efficiency and cost-effectiveness in managing large infrastructure projects.