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Retention Bank Guarantee

Retention Bank Guarantee Template for New Zealand

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Key Requirements PROMPT example:

Retention Bank Guarantee

"I need a Retention Bank Guarantee for a NZ$5M construction project in Auckland, with the guarantee amount reducing by 50% after practical completion in March 2025, and the remaining amount releasing after the defects liability period ends in September 2025."

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Document background
The Retention Bank Guarantee is a crucial document in New Zealand's construction and infrastructure sectors, designed to replace the traditional retention money mechanism in construction contracts. When a contractor enters into a construction contract, the project owner typically withholds a percentage of payment (retention money) as security against defects or non-completion. A Retention Bank Guarantee allows the contractor to receive full payment by having a bank guarantee this retention amount instead. The document must comply with New Zealand's Construction Contracts Act 2002 and banking regulations, and typically includes details of the guaranteed amount, conditions for calling on the guarantee, expiry dates, and claim procedures. This arrangement benefits contractors by improving their cash flow while maintaining the project owner's security position.
Suggested Sections

1. Parties: Identifies the key parties: the Bank (Guarantor), the Contractor (Principal), and the Beneficiary (typically the Project Owner)

2. Background: Sets out the context of the underlying construction contract and the reason for the retention guarantee

3. Definitions: Defines key terms used throughout the guarantee document

4. Guarantee and Indemnity: The core section specifying the bank's guarantee and the maximum guaranteed amount

5. Conditions for Payment: Specifies the circumstances and process under which the guarantee can be called upon

6. Duration and Expiry: States the effective period of the guarantee and conditions for expiry

7. Bank's Rights and Obligations: Details the bank's obligations and rights under the guarantee

8. Demand Requirements: Specifies the formal requirements for making a valid demand under the guarantee

9. Payment Process: Details how payments will be made when the guarantee is called upon

10. Governing Law and Jurisdiction: Specifies that New Zealand law governs the guarantee and sets jurisdiction for disputes

Optional Sections

1. Assignment: Include when the guarantee needs to be transferable or when assignment needs to be specifically prohibited

2. Costs and Expenses: Include when there needs to be clarity about who bears the costs of establishing and maintaining the guarantee

3. Notices: Include when formal notice requirements need to be specified beyond the standard demand process

4. Multiple Beneficiaries: Include when there are multiple parties who may call on the guarantee

5. Reduction Provisions: Include when the guarantee amount may be reduced over time in line with the underlying contract

6. Step-In Rights: Include when other parties may have rights to step into the position of the beneficiary

Suggested Schedules

1. Form of Demand: Template for making a valid demand under the guarantee

2. Original Contract Details: Summary of the key details from the underlying construction contract relevant to the retention

3. Payment Schedule: If applicable, schedule showing any planned reductions in the guarantee amount

4. Authorized Signatories: List of persons authorized to make demands under the guarantee

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant Industries

Construction

Infrastructure

Banking and Financial Services

Property Development

Engineering

Commercial Real Estate

Public Works

Mining

Energy

Relevant Teams

Legal

Finance

Commercial

Construction

Project Management

Risk and Compliance

Treasury

Procurement

Contract Administration

Relevant Roles

Project Manager

Construction Manager

Contract Administrator

Financial Manager

Bank Manager

Legal Counsel

Commercial Director

Chief Financial Officer

Risk Manager

Project Director

Construction Director

Quantity Surveyor

Procurement Manager

Treasury Manager

Industries
Contract and Commercial Law Act 2017: This act provides the fundamental framework for contract formation, enforcement, and remedies in New Zealand. It's essential for ensuring the bank guarantee agreement is legally valid and enforceable.
Construction Contracts Act 2002: Governs construction contracts in New Zealand and includes provisions about retention money, making it crucial for understanding the context and requirements of retention guarantees in construction projects.
Reserve Bank of New Zealand Act 1989: Regulates banking institutions in New Zealand and provides the framework under which banks can issue guarantees.
Fair Trading Act 1986: Ensures fair trading practices and prohibits misleading conduct in trade. This is relevant for ensuring the guarantee terms are fair and clearly communicated.
Building Act 2004: May be relevant when the retention guarantee relates to building work, as it sets out requirements for building work and could affect retention periods.
Personal Property Securities Act 1999: Might be relevant if the retention guarantee needs to be registered as a security interest.
Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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