Meet contractual requirements for a bond without tying up your working capital
When you’re involved in international contracts, you’ll often find that your customer requires you to provide a performance bond. This is an assurance to your customer from a third party, such as a bank, that you will carry out your contractual obligations.
There are several types of bonds – advance payment, performance and warranty bonds – all of which are common requirements of international contracts.
When your customer requests a bond, you’ll probably turn to your bank first. However, as security, your bank may ask you to provide the full amount of the bond in cash. Like many SMEs, you either may not have that kind of cash available or need to keep your working capital free for other uses.
If your bank can’t assist you with a bond, or requests an amount of security that you can’t provide, EFIC (Australia’s export credit agency), may be able to help.
The security we require may be less than the amount of the bond, as it’s based on our assessment of your ability to perform the contract. This means you can fulfil your customer’s requirement for a bond without tying up all your working capital.
Here is how EFIC’s bonds have recently assisted two Australian exporters.
Aircraft Support Industries
Australian exporter Aircraft Support Industries Pty Ltd (ASI) won a US$68.2 million contract for the design and construction of an aircraft maintenance hangar at Abu Dhabi International Airport.
The contract required ASI to provide a performance bond of US$6.8 million to its customer, Abu Dhabi Aircraft Technologies (ADAT), but ASI lacked the cash to obtain the bond from its bank.
EFIC issued a guarantee to ASI’s bank, National Australia Bank (NAB), to enable the bank to issue a standby letter of credit to the National Bank of Abu Dhabi, which in turn issued the performance bond to ADAT.
Gasco
Leading combustion and process engineering company, Gasco Pty Ltd, won a US$6.5 million contract to supply equipment to the Dolphin Energy Project in the Middle East.
The contract required Gasco to provide a US$650,000 performance bond.
EFIC provided a guarantee to Gasco’s bank, ANZ, which in turn issued the performance bond to Gasco’s client, Stroytransgaz.
For more information, visit efic.gov.au/bonds.