BANK GUARANTEE AS A FORM OF GUARANTEE FOR CONSTRUCTION PROJECT

The definition of a Bank Guarantee itself is not found explicitly in a law or regulation.

The Bank Guarantee is an additional agreement (accessoir) in the form of a guarantee agreement
(borghtocht) as regulated in Article 1820 to Article 1850 of the Indonesia Civil Code (ICC).

In banking practice, a Bank Guarantee is a written statement from the Bank containing the obligation
to guarantee the payment of a sum of money to another party (the guarantee recipient) if the
guaranteed party defaults or cannot fulfil the agreed obligations (principal agreement).

Article 1, paragraph 3 of the Decree of the Board of Directors of Bank Indonesia Number 23/88/KEP/DIR of 1991 (SKD BI 23/1991) concerning the Provision of Bank Guarantees states that the forms of bank guarantees that banks can issue are as follows:

1. The format of the document issued by the bank;
2. . The second and subsequent forms of signing on securities;
3. . Other guarantees occur because of a conditional agreement.

Furthermore, Article 2 paragraph (4) of the Decree of the Board of Directors of Bank Indonesia Number 23/88/KEP/DIR of 1991 states that a Bank Guarantee may not contain:

1.   The conditions that must first be met for the Bank Guarantee to apply
2. Provisions that the Bank Guarantee is revocable or cancelled unilaterally

Therefore, based on this provision, it can be concluded that the Bank Guarantee is unconditional and irrevocable. What is meant by unconditional is that a bank guarantee may not contain a provision that a creditor must first prove the default act committed by the guaranteed party.

While irrevocable means that the provisions in the bank guarantee cannot be changed or cancelled unilaterally either from the guarantor, guaranteed, or creditor.

The bank guarantee itself in its manufacture must include the following conditions, namely:

1.   Title Bank Guarantee or Bank Guarantee
2. Name and address of the guarantor bank.
3. Date of issuance of Bank Guarantee
4. Transactions between the guaranteed party and the guarantor.
5. The amount of money guaranteed by the bank.
6. The start and end date of the Bank Guarantee.
7. Confirmation of the deadline for submitting a claim.
8. A statement that the guarantor (bank) will fulfil the payment by first confiscating and selling the debtor’s goods to pay off the debt in accordance with article 1831 of the Civil Code, or a statement that the guarantor (bank) relinquishes his privilege to demands that the debtor’s objects be confiscated and sold to pay off his debts in accordance with article 1832 of the Civil Code.

In a construction projects, there are the following types of bank guarantees :

   1. Bank Guarantee tender (Bid Bond) Bank Guarantee is given to the project owner (Bouwheer) for the benefit of the contractor or supplier who will participate in a tender for a project, in this case the guaranteed party is the contractor or supplier.

One of the conditions for the contractor or supplier to participate in the tender is to submit a Bank Guarantee

2. Bank Guarantee Implementation (Performance Bond). Bank Guarantee is given to the project owner (Bouwheer) for the benefit of the contractor or supplier to ensure the execution of the work or project by the contractor or supplier.

3. Bank Guarantee Advance (Advance Payment Bond). Bank Guarantee given to the project owner
(Bouwheer) for the benefit of the contractor or supplier for the down payment received by the contractor

4. Bank Guarantee Maintenance (Retention Bond). Bank Guarantee given to the project owner (Bouwheer) for the benefit of the contractor or supplier to ensure the maintenance of the project that has been completed by the contractor

The process of making a bank guarantee itself consists of several steps as follows:

1. The contractor (debtor) submits a written application to the bank to issue a tender bank guarantee

2. The bank after receiving a letter of application for the issuance of a tender bank guarantee from the debtor, then makes a proposal for a bank guarantee tender application.

3. The bank performs an analysis of the written request from the debtor (contractor) which has been made in the form of a proposal for a bank guarantee tender.

4. The Bank sends an approval letter for granting a tender bank guarantee in writing to the debtor
(contractor) after the analysis has been carried out and the analysis show that the creditor is eligible for approval for the granting of a tender bank guarantee.

5. The debtor (contractor) completes other requirements that have not been submitted, such as: paying the fees to be paid, submitting the opponent’s guarantee to the bank.

6. The bank and the applicant (contractor) then sign an agreement to provide a tender bank guarantee. It is also important to note that the bank guarantee agreement signed by the applicant (contractor) and the bank in its manufacture must include the following conditions as elaborated above.

In general, a bank guarantee will contain an expressed clause that states that a claim can be submitted immediately after a default arises.

This is usually within 14 days and no later than 30 days after the end of the Bank Guarantee. The process for submitting this claim is different for each bank but still adheres to the prudential banking principle, namely the prudence of the bank to minimize the risk of the bank’s operational business by referring to the provisions of the central bank and the bank’s internal regulations. (FMN)

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