What's the difference between a bank guarantee and a performance bond?Ii'm trying to figure what the difference is between the two. Please don't send me Wikipidea stuff I tried it but I just can't seem to understand. Thanks | |
What's the difference between a bank guarantee and a performance bond?Ii'm trying to figure what the difference is between the two. Please don't send me Wikipidea stuff I tried it but I just can't seem to understand. Thanks | |
A bank guarantee would be in the form of an Irrevocable Letter Of Credit (ILOC). It is for a fixed dollar amount and can be drawn down by the Obligee (Entity that required it). The bank has no responsibility for any terms of the contract.
A performance bond is issued by a surety (insurance) company and guarantees a specific contract for its full amount, which can vary based on any contract changes. The surety is effectively co-signing the contract and is as liable for the performance of it as the contractor.
The two can be linked and yet may not be linked....
Bank guarantee is a monetary guarantee extended by a bank on behalf of a client (Y) who shall surrender the guarantee on failure of certain promise made by it, to say X. X can get the guaranteedamount from the bank without rreferringto Y.
Performance bond, irrespective of its form, is an assurance from, say, a seller, on fulfilling certain jointly agreed performance parameters, to the buyer. In case the parameters are not fulfilled the bond may been-cashedd by the buyer.
Usually, the Performance bond is given by the seller to the buyer in the form of a bank guarantee.
Check my sites:
http://supplychainmanagement.in/
http://materials-manage.com/