Insurance Surety Bonds are a great tool to provide financial guarantees for bid securities, performance guarantees, advance payment guarantees and retention guarantees in India. We discuss in depth about them and their advantages over Bank Guarantees through a recently awarded project by Energy Efficiency Services Limited (EESL) under PM Kususm Yojna for Manufacturing, Supply, Commissioning and Maintenance of Solar Pumpsets.

PROJECT DETAILS

DESCRIPTION

Design, Manufacture, Supply, Transport, Installation, Testing and Commissioning of Off Grid Solar Photovoltaic Water Pumping Systems of 1-10 HP in selected States on PAN India basis, including complete system warranty and its repair and maintenance for 5 Years under MNRE KUSUM scheme

PRINCIPAL ORGANIZATION AND PROJECT REFERENCE

Energy Efficiency Services Limited (under Ministry of New & Renewable Energy)

EESL/06/2020-21/KUSUM/SWPS/1-10

CONTRACT VALUE

INR 7949,37,50,000

PROJECT CONTRACTORS

Gautam Solar Pvt. Ltd.

Bid Bond and Retention Bond for EESL contractors under PM KUSUM Yojna provided by Surety Seven

FINANCIAL GUARANTEE DETAILS

BANK GUARANTEE (BY BANKS) VS INSURANCE SURETY BOND TECHNOLOGY (BY SURETY 007)

Bank Guarantees are a costly affair and are typically required in design, supply, manufacturing, trade projects to furnish a financial guarantee. These guarantees are provided for Bid Security, Performance Guarantee, Payment Guarantee and Retention/Maintenance Guarantee.

Insurance Surety Bonds are an alternative to Bank guarantees and are issued by insurance companies. Surety Bonds have been allowed in India by the Hon. Minister of Finance, Mrs. Nirmala Sitharaman, in the union budget session of 2022. We provide a comparative analysis of taking Bank Guarantees and Surety Bonds for the above mentioned project.

	Bank Guarantee	Insurance Surety Bond
Cost (in % p.a.)	1-2%	1-3% (Retention Bond)
Collateral or Margin Money	Required between 50-100%	Not required (0%)
Working Capital	Blocked due to margin money requirements	Unblocked due to no requirements of margin money
Line of Credit	Blocked by bank up to the amount of BG	Issued by Insurance company. So no blocking of Line of Credit
Time Spent	Takes 15-30 days to issue	Takes 1-5 days to issue

Bank Guarantee vs Insurance Surety Bonds – Retention Bond

CHOOSING INSURANCE SURETY BONDS FOR BID, PERFORMANCE OR PAYMENT GUARANTEE

The above comparison between the projects makes it abundantly clear for design, supply, manufacturing companies, who have been contracted by NHAI for the above mentioned project, that Insurance Surety Bonds are the clear way forward for providing financial guarantees. A contractor will receive the following benefits with Insurance Surety Bonds:

Increased Working Capital to deliver better quality work
Enhanced availability of Line of Credit and better utilization of Line of Credit to take up more projects
Improved turn around time as Digital first Surety Bond Technology companies (like Surety 007) provide Surety Bonds as compared to traditional banking system which has long waiting periods.

Surety 007 is providing free consultation on Surety Bonds to all companies that are building the infrastructure for Bharat . We invite contractors for the EESL project EESL/06/2020-21/KUSUM/SWPS/1-10 to avail free Insurance Surety Bonds consultation from Surety 007. Reach out to us on support@suretyseven.com OR call us at +919911557724.