Surety for Balance Payment

What is the Surety for Balance Payment?

The surety for the balance payment is a guarantee that is requested within a contract for tender, especially in the public sector. This surety ensures the payment of the final installment of money owed to the contractor, known as the “balance payment,” which is generally paid at the end of the work or service provided, after all contractual conditions have been met.te.

Here are some key points regarding the surety for the balance payment:

  1. Purpose: The surety ensures that the contractor receives the final payment (balance payment) according to the contractual terms. It serves to protect the contractor in case the contracting entity fails to make the due payment.
  2. Amount and Conditions: The amount of the surety generally corresponds to the amount of the balance payment, sometimes increased by legal interest for the period between the date of testing or compliance verification and the actual payment of the balance.
  3. Issuance Mode: The surety can be issued by a credit institution or an insurance company and must meet certain legal and contractual conditions to be valid.
  4. Security for the Contractor: This guarantee provides financial security to the contractor, ensuring that they receive full payment for the work performed, even in case of financial difficulties or other unforeseen circumstances by the contracting entity.
  5. Common Practice: The practice of requesting a surety for the balance payment is common in many tender contracts, especially those of higher value or involving complex work, to ensure the proper financial conclusion of the contract.

Essentially, the surety for the balance payment is an important guarantee tool that protects the interests of the contractor, ensuring that they are properly compensated for the work or services provided according to the terms agreed upon in the tender contract.

When does the Insurance Surety for the Balance Payment expire?

The expiration of the surety for the balance payment in a public tender contract is typically aligned with the completion of the contractor’s contractual obligations and the final payment of the balance installment. Here are the main details:

  1. After Testing or Compliance Verification: The surety for the balance payment generally remains valid until the issuance of the testing certificate (for works) or compliance verification (for services or supplies), which attest that the contractor has completed the work according to the terms of the contract.
  2. Payment of the Balance Payment: The surety expires once the contracting entity has made the payment of the balance payment to the contractor, thus completing all financial transactions envisaged by the contract.
  3. Specific Contract Terms: The exact duration of the insurance surety may vary based on the specific terms of the tender contract. It is important to consult the contract to know the exact details regarding the expiration of the surety.
  4. Post-Testing Warranty Period: In some cases, the surety can be extended beyond testing to cover a possible warranty period. This period serves to ensure that any defects or problems that emerge after the testing are resolved by the contractor.

In summary, the surety for the balance payment generally expires after the contracting entity has verified the satisfactory completion of the work and made the final payment to the contractor, unless specific contract conditions extend its validity.

What is the Balance Payment?

The balance payment in public contracts refers to the last payment that the contracting entity makes to the contractor, in accordance with the terms of the tender contract. This installment represents the final part of the total payment due for the works, supplies, or services completed by the contractor. Here are some key aspects:

  1. Timing of Payment: The balance payment is usually made after the work has been completed and all contractual requirements have been met. This includes, for example, the realization of works, the supply of goods, or the provision of agreed services.
  2. Verification and Testing: Before the payment of the balance payment, a testing or compliance verification is often carried out to ensure that the work performed meets the technical specifications and conditions established in the contract.
  3. Percentage of the Contract: The balance payment represents a percentage of the total contractual amount, which is defined in the contract itself.
  4. Guarantees: To ensure the payment of the balance payment, the contractor may be required to provide an insurance or bank surety. This serves to guarantee that the contractor receives the final payment in case the contracting entity fails to proceed with the due balance.
  5. Financial Conclusion of the Contract: The payment of the balance payment signals the financial conclusion of the tender contract, indicating that all financial obligations between the contracting entity and the contractor have been met.

In summary, the balance payment is a crucial element in public tender contracts, representing the final payment that signifies the completion of the work and the fulfillment of the contractual obligations by the contractor.

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In contracts between private parties, when advance payments are made by the client, a guarantee ranging between 5% and 15% of the contract value that expires at testing is often requested.

The surety can be issued by an Insurance Company authorized to issue sureties in Italy, by a financial company under art 106 TUB, or by a Credit Institution.

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