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General Contract Bond Guarantee

The General Contract Bond Guarantee is available for export transactions where an overseas buyer requires a contract bond as financial assurance that the New Zealand exporter will honour its contractual obligations.

The NZECO does not issue the bond itself but guarantees the performance of the exporter to the bond issuer (either a bank, NZ bond provider or an overseas surety provider) when:

  • the exporter’s bank is not prepared to issue the bond because the exporter lacks sufficient security for the bond in addition to the working capital required; or
  • their buyer requires the bond to be provided by a bond provider and the exporter doesn’t have a history with that bond provider or has insufficient security.

Participating banks (as at March 2011):

  • ASB
  • Kiwibank
  • Westpac
  • ANZ
  • The National Bank
  • BNZ
  • HSBC

Benefits of the Contract Bond Guarantee

Benefits for a New Zealand exporter include:

  • the opportunity to secure additional or larger contracts with overseas buyers who require bonds;
  • an extension of exporter’s bonding lines without requiring additional security; and
  • can free up an exporter’s working capital.

The NZECO can also offer the exporter unfair calling of the bond insurance.

Assessment and Eligibility

An exporter and their bank or bond provider will submit a joint application and assessment fee to the NZECO. When reviewing an application for a General Contract Bond Guarantee, the NZECO will assess:

  • The exporter’s ability to perform the contract: the exporter must show a proven export trading history and that it has the managerial, technical and financial capability to perform the proposed contract;
  • New Zealand content: the export contract to which the bond(s) relate must have a New Zealand economic benefit.
  • The acceptability of the form and terms of the export contract and bond: including the tenor and terms of the bond, the contractual payment and delivery terms, how delays and disputes will be settled, termination rights, jurisdiction and applicable law;
  • Buyer: the exporter’s history with the buyer, and the commercial practices or business reputation of the buyer (in part, to assess the likelihood of unfair calling of the bond).
  • Country: the current conditions and economic outlook in the destination country. NZECO criteria: whether the application fits with the NZECO’s delegation, including the requirement that the commercial market is unable to support the bond (e.g. due to insufficient security).

    • The bond application must relate to a specific export transaction and not a revolving bond facility.

    If the NZECO approves the application, it will then provide up to 100% indemnity to the bank, bond provider or surety bond provider who will then issue a bond on the exporter’s behalf. In many cases the NZECO may risk-share the level of the bond with the bank or bond provider.

    As a condition of cover, the NZECO will also enter into a separate agreement with the exporter that provides the NZECO with the right to seek recourse.

    How the Contract Bond Guarantee works is summarised in the diagram below:

    Contract Bond Guarantee Process

    Types of Bonds Covered

    The General Contract Bond Guarantee provides cover for the following types of bond:

    • Bid bond – a bond which protects the buyer against loss from re-tendering work when an exporter is unwilling or unable to take on a contract after being awarded the work by the exporter. *
    • Advance payment bond – a bond which protects the buyer against loss when the buyer advances funds to the exporter and the exporter does not meet their contractual obligations.
    • Performance bond – a bond which protects the buyer from loss if the exporter does not perform under the contract.
    • Labour and material payment bond – a bond which protects the buyer from loss if the exporter does not pay the subcontractors, labourer’s and material suppliers who have performed under their contract.
    • Warranty / maintenance bond – a bond which protects the buyer from loss if the exporter fails to comply with their contractual obligations to rectify faults and failures after completing the contract. *
    • Retention bond – a bond which protects the buyer from defects in work discovered after the completion of the contract even if full payment has been made to the exporter. *

      • * NZECO will only guarantee these bonds in conjunction with a performance and/ or labour and material payment bond that also requires a NZECO guarantee

      • The duration of the bond will depend on the overseas buyers’ requirements and NZECO does not have a minimum or maximum term for the bond. It is likely, however, that most contracts and the associated bonds will have duration of between 1-3 years.

      The NZECO will review the terms of each bond, and will only cover bonds that have either a fixed or clearly defined tenor.

      How do I apply and what do I need?

      To apply for a Contract Bond Guarantee you and your bank or bond provider need to complete the application form and pay the non-refundable assessment fee of $1,000 NZD. 

      The application form outlines the information the NZECO needs to assess your application As part of this assessment, the NZECO will meet with you and your bank or bond provider.

      We recommend that you discuss your bonding requirements with your bank or bond provider and the NZECO as early as possible.

      Premium

      A premium will be charged for the Contract Bond Guarantee. Pricing is based on a number of variables including NZECO’s exporter assessment, duration of cover, buyer risks, and contract-specific risk factors. This pricing is fixed on a case-by-case basis and is intended to cover the risk that the NZECO is taking.

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