Parent Company Guarantee

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Parent Company Guarantee is a written undertaking by Contractors ultimate parent to Client, guaranteeing performance and undertaking to complete obligations under the Contract in the event of default in Contractor’s performance (a subsidiary of such parent).

Unlike a bank guarantee that is issued by a bank and has financial value, Parent Company Guarantees do not have a financial value but serve as an undertaking only.

The guarantee letter is normally executed/signed by the directors of the company authorised to accept liabilities. In case Joint Ventures Parent Company Guarantee should be obtained from each of the companies that are part of the Joint Venture.

It should be noted that legally, Parent Company Guarantee is not part of the Contract since they are agreements or guarantees given by parties other than the Contracting parties. However they are material to the performance of the contract and hence can be included for reference by the Contracting parties.

Parent Company Guarantees are normally sought from Contractors, especially where the company entering into the Contract has limited assets while being a part of a larger group. Such companies may not have a capital of their own as all their revenues and profits could be repatriated back to their parent company and Clients do not get a proper chance to contract with the ultimate parent or holding company. It could also be that the Contractor present in a local location could have partnerships that might not be as easily trusted by a Client with respect to its technical, financial or other capabilities as much as it would trust Contractors parent company.

Bank guarantees are substituted by Parent CompanyGuarantees in situations where there is not a strong need felt for having in place a financial guarantee especially when the Contractor is reputed/well known to the Client.

In case the subsidiary is a mere marketing front for the parent company and the subsidiary is completely dependent on its parent company financially and for resources, it is strongly suggested to contract with the ultimate holding or parent company. In the event of any legal action,Client would have direct access to the resources of the parent or ultimate holding company in resolving or overcoming any disputes which may arise. This would not be the case when contracting with a subsidiary company which did not retain any of its profits and which could be wound up by a holding or parent company in the event of business difficulties.

A few typical format’s of a Parent Company Guarantee are given below.

030210Page 1 of 1Parent Company Guarantee

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Sample 1

FORM OF PARENT COMPANY GUARANTEE

(To be completed on letterhead of

Tenderer's Ultimate Parent Company)

To:

Client

______

Attn:______

______

Dear Sirs,

Subject:______

Project No. ______

______

Invitation to Tender No. ______

We refer to the accompanying Tender for the subject mentioned Services(“SERVICES”) by (Name of Tenderer) (“TENDERER”) of which we are the ultimate holding company, and hereby request (Name of Client)(COMPANY) to enter into a contract with TENDERER for the same. In the event of COMPANY doing so and in consideration of COMPANY entering into such contract ("AGREEMENT"):

1.We guarantee that TENDERER shall duly perform all its obligations contained in the AGREEMENT.

2.If TENDERER shall in any respect fail to perform its obligations under AGREEMENT or shall commit any breach thereof, we undertake, on simple demand by COMPANY, to perform or to take whatever steps may be necessary to achieve performance of said obligations under AGREEMENT and shall indemnify and keep indemnified COMPANY against any loss, damages, claims, costs and expenses which may be incurred by COMPANY by reason of any such failure or breach on the part of TENDERER.

3.Our guarantee and undertaking hereunder shall be unconditional and irrevocable and, without prejudice to the generality of the foregoing, we shall not be released or discharged from our liability hereunder by: -

(a)Any waiver of forbearance by COMPANY of or in respect of any of TENDERER's obligations under AGREEMENT whether as to payment, time, performance or otherwise howsoever or by any failure by COMPANY to enforce AGREEMENT or this instrument, or

(b)Any alteration to, addition to or deletion from AGREEMENT or the scope of the services to be performed under AGREEMENT, or

(c)Any change in the shareholding relationship between ourselves and TENDERER and our guarantee and undertakings hereunder shall continue in force until all TENDERER's obligations under AGREEMENT and all our obligations hereunder have been duly performed.

4.This document shall be construed and take effect in accordance with the laws of the [Insert name of country].

Yours faithfully,

Signed:......

Name:......

Date:......

Signed:......

Name:......

Date:......

For and on behalf of

......

(TENDERER's ultimate holding company)

Page 1 of 2Sample 1 Parent Company Guarantee

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Sample 2

FORM OF PARENT COMPANY GUARANTEE

(To be completed on letterhead of

Tenderer's Ultimate Parent Company)

From: [Insert Contractors Parent Company Name]

Having its office at:

______

As holding company for [Insert Contractors Local Company Name]

Having its office at:

______

Date:

To:

[Insert Name and full address of Client]

______

Ref.:Contract No. ______for [Insert Name of Works/Services]

With reference to the accompanying Tender (“TENDER”) for the subject, we, as [Insert Contractors Parent Company Name], parent company of [Insert Contractors Local Company Name] (CONTRACTOR), do hereby enter into the following unconditional and irrevocable undertaking with [Insert Name of Client] (“COMPANY”), that on condition that COMPANY enters into a Contract for the subject [Works/Services]with CONTRACTOR (“CONTRACT”) and in consideration of same:

1.CONTRACTOR shall perform all of its obligations contained in the said CONTRACT.

2.If CONTRACTOR shall in any respect be determined by COMPANY to have failed to perform the said obligations contained in the said CONTRACT or commits any breach thereof, we shall, on simple demand from COMPANY, ourselves promptly perform or take whatever steps may be necessary to achieve performance of the obligations of CONTRACTOR under the CONTRACT and shall indemnify and keep indemnified COMPANY against any loss, damages, costs and expenses, howsoever arising from the said failure or breach of CONTRACTOR as determined by COMPANY, as if we were the original obligor.

3.We shall not be discharged or released from our undertaking hereunder by any waiver or forbearance by COMPANY whether as to payment, time for performance or otherwise.

4.The expressions COMPANY, WORK and CONTRACT and other terms or expressions in capital letters shall have the meaning respectively ascribed to them in the FORM OF CONTRACT.

5.This Guarantee shall be governed by and construed in accordance with the laws of [Insert Name of the Country or Law].

Yours faithfully,

______

Signed by:______

Date:______

For and on behalf of:______

(Name of TENDERER’s parent company)

______

Page 1 of 2Sample 2 Parent Company Guarantee