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Types of insurance
The source is ( Wekipedia,the free encyclopaedia)
http://en.wikipedia.org/wiki/Insurance
Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which are not.

Below is a (non-exhaustive) list of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set forth below. For example, auto insurance would typically cover both property risk (covering the risk of theft or damage to the car) and liability risk (covering legal claims from causing an accident). A homeowner's insurance policy in the U.S. typically includes property insurance covering damage to the home and the owner's belongings, liability insurance covering certain legal claims against the owner, and even a small amount of health insurance for medical expenses of guests who are injured on the owner's property.

Automobile insurance, known in the UK as motor insurance, is probably the most common form of insurance and may cover both legal liability claims against the driver and loss of or damage to the insured's vehicle itself. Throughout most of the United States an auto insurance policy is required to legally operate a motor vehicle on public roads. In some jurisdictions, bodily injury compensation for automobile accident victims has been changed to a no-fault system, which reduces or eliminates the ability to sue for compensation but provides automatic eligibility for benefits. Credit card companies insure against damage on rented cars.
Aviation insurance insures against hull, spares, deductible, hull war and liability risks.
Boiler insurance (also known as boiler and machinery insurance or equipment breakdown insurance) insures against accidental physical damage to equipment or machinery.
Builder's risk insurance insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage due to any cause (including the negligence of the insured) not otherwise expressly excluded.
Business insurance can be any kind of insurance that protects businesses against risks. Some principal subtypes of business insurance are (a) the various kinds of professional liability insurance, also called professional indemnity insurance, which are discussed below under that name; and (b) the business owners policy (BOP), which bundles into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners insurance bundles the coverages that a homeowner needs.[7]
Casualty insurance insures against accidents, not necessarily tied to any specific property.
Credit insurance repays some or all of a loan back when certain things happen to the borrower such as unemployment, disability, or death. Mortgage insurance (which see below) is a form of credit insurance, although the name credit insurance more often is used to refer to policies that cover other kinds of debt.
Crime insurance insures the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft or embezzlement.
Crop insurance "Farmers use crop insurance to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease, for instance."[8]
Defense Base Act Workers' compensation or DBA Insurance insurance provides coverage for civilian workers hired by the government to perform contracts outside the US and Canada. DBA is required for all US citizens, US residents, US Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, Foreign Nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
Directors and officers liability insurance protects an organization (usually a corporation) from costs associated with litigation resulting from mistakes incurred by directors and officers for which they are liable. In the industry, it is usually called "D&O" for short.
Disability insurance policies provide financial support in the event the policyholder is unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgages and credit cards.
Total permanent disability insurance insurance provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
Errors and omissions insurance: See "Professional liability insurance" under "Liability insurance".
Expatriate insurance provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
Financial loss insurance protects individuals and companies against various financial risks. For example, a business might purchase cover to protect it from loss of sales if a fire in a factory prevented it from carrying out its business for a time. Insurance might also cover the failure of a creditor to pay money it owes to the insured. This type of insurance is frequently referred to as "business interruption insurance." Fidelity bonds and surety bonds are included in this category, although these products provide a benefit to a third party (the "obligee") in the event the insured party (usually referred to as the "obligor") fails to perform its obligations under a contract with the obligee.
Fire insurance: See "Property insurance".
Hazard insurance: See "Property insurance".
Health insurance policies will often cover the cost of private medical treatments if the National Health Service in the UK (NHS) or other publicly-funded health programs do not pay for them. It will often result in quicker health care where better facilities are available.
Kidnap and ransom insurance
Home insurance or homeowners insurance: See "Property insurance".
Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of willful or intentional acts by the insured.
Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
Professional liability insurance, also called professional indemnity insurance, protects professional practitioners such as architects, lawyers, doctors, and accountants against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called malpractice insurance. Notaries public may take out errors and omissions insurance (E&O). Other potential E&O policyholders include, for example, real estate brokers, home inspectors, appraisers, and website developers.
Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.
Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.
Locked funds insurance is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
Marine insurance and marine cargo insurance cover the loss or damage of ships at sea or on inland waterways, and of the cargo that may be on them. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.
Mortgage insurance insures the lender against default by the borrower.
National Insurance is the UK's version of social insurance (which see below).
No-fault insurance is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
Nuclear incident insurance covers damages resulting from an incident involving radioactive materials and is generally arranged at the national level. (For the United States, see the Price-Anderson Nuclear Industries Indemnity Act.)
Pet insurance insures pets against accidents and illnesses - some companies cover routine/wellness care and burial, as well.
Political risk insurance can be taken out by businesses with operations in countries in which there is a risk that revolution or other political conditions will result in a loss.
Pollution Insurance. A first-party coverage for contamination of insured property either by external or on-site sources. Coverage for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded
Prize indemnity insurance protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball game, or a hole-in-one at a golf tournament.
Property insurance provides protection against risks to property, such as fire, theft or weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance, inland marine insurance or boiler insurance.
Protected Self-Insurance is an alternative risk financing mechanism in which an organisation retains the mathematically calculated cost of risk within the organisation and transfers the catastrophic risk with specific and aggregate limits to an Insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
Retrospectively Rated Insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
Formal Self Insurance is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
Social insurance can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that mandates participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state. This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
Social welfare provision
Social security
Social safety net
National Insurance
Social Security (United States)
Social Security debate (United States)
Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organisations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.
Surety Bond insurance is a three party insurance guaranteeing the performance of the principal.
Terrorism insurance provides protection against any loss or damage caused by terrorist activities.
Title insurance provides a guarantee that title to real property is vested in the purchaser and/or mortgagee, free and clear of liens or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate transaction.
Travel insurance is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, lost of personal belongings, travel delay, personal liabilities, etc.
Volcano insurance is an insurance that covers volcano damage in Hawaii.
Workers' compensation insurance replaces all or part of a worker's wages lost and accompanying medical expense incurred because of a job-related injury.

History of insurance
( The source is Wekipedia,the free encyclopeadia)
In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union).

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."[1]

A thousand years later, the inhabitants of Rhodes invented the concept of the 'general average'. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were jettisoned during storm or sinkage.

The Greeks and Romans introduced the origins of health and life insurance c. 600 AD when they organized guilds called "benevolent societies" which cared for the families and paid funeral expenses of members upon death. Guilds in the Middle Ages served a similar purpose. The Talmud deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. Insurance became far more sophisticated in post-Renaissance Europe, and specialized varieties developed.

Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

The first insurance company in the United States underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina, in 1732.

Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly against fire in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.

In the United States, regulation of the insurance industry is highly Balkanized, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.

In the state of New York, which has unique laws in keeping with its stature as a global business centre, former New York Attorney General Eliot Spitzer was in a unique position to grapple with major national insurance brokerages. Spitzer alleged that Marsh & McLennan steered business to insurance carriers based on the amount of contingent commissions that could be extracted from carriers, rather than basing decisions on whether carriers had the best deals for clients. Several of the largest commercial insurance brokerages have since stopped accepting contingent commissions and have adopted new business models.

You should read this if you are involved in trading your goods worldwide. If you are an exporter you should pass this information onto your sales and marketing team and the department responsible for arranging the shipment of export consignments.

If you are an importer you should ensure your buying department as well as the team handling the supply and import process are aware of the information in this Briefing.

What is cargo insurance?
Cargo insurance (also called marine cargo insurance) covers physical damage to, or loss of your goods whilst in transit by land, sea and air and offers considerable opportunities and cost advantages if managed correctly.

Unfortunately, many UK traders do not want to become involved in arranging this type of insurance because they feel they do not have sufficient knowledge. They see it as an unnecessary expense involving extra administration, and make the mistake of allowing suppliers or customers to control this vital area of business. This loss of control not only increases the difficulties of implementing an effective trade risk management strategy, but can also have far reaching effects on profitability.

Fortunately, this attitude is changing, with more and more companies following the lead of many of the 'blue-chip' manufacturing and trading giants of the UK economy who tend to take full control of this type of insurance.

When you are looking at the types of cargo insurance available, you may come across the term General Average. This is one of the oldest principles of cargo insurance and relates only to ocean and sea voyages but is still relevant in today's trading environment. General Average covers the situation where damage or loss of certain goods occurs so that the remaining cargo and the means of transport are saved. For example goods may sustain water damage during fire fighting. In this situation, if General Average is declared, all the parties involved must contribute to covering the loss.

Cargo insurance is usually provided by the means of one of three Institute Cargo Clauses - A, B or C, plus War Clauses and Strikes Clauses. Simply put Cargo Clauses A provide the most cover with B and C giving less coverage which is reflected in reduced premiums for the lower cover (somewhat similar to car insurance cover with comprehensive, third party, fire and theft, and third party policies). Also there is an Institute Cargo Clauses (Air) for movement by air, which is equivalent to the A clauses. Your insurance company or broker will be able to give details of exactly what cover is given by each clause so you can choose the most appropriate for your business needs and trading patterns.

Why do traders need cargo insurance?
Exports
Many major UK exporters and trading companies sell on Cost Insurance and Freight (CIF) or similar terms, which allows them to arrange marine cargo insurance in the UK - usually on an 'open cover' basis. Because this insurance cost is legitimately passed on to the customer, who also gets the benefit of the insurance, this virtually amounts to free insurance which the exporter controls.

Many foreign buyers see this as essential service provided by the exporter, given that cargo insurance rates in UK are often cheaper than those available to the overseas customer in his local market. Indeed, exporters who do not provide a 'package' which includes insurance, can lose business to competitors who do.

The other side of the coin is where UK exporters allow their customers to arrange the insurance. This can range from selling on Ex Works terms to exporting on Free on Board (FOB) or Cost and Freight (CFR) terms. An Ex Works sale represents the minimum obligation for the seller, who has merely to make the goods available at his premises for collection by the buyer's designated carriers.

However, what tends to be overlooked is that the exporter is totally reliant on the buyer arranging adequate insurance on goods which have probably not been paid for. If the goods arrive damaged or if the buyer's insurance does not cover the loss, the exporter may not receive payment. Additionally if the goods or shipping documents are rejected on arrival at destination, the insurance risk can often revert to the exporter who may not have taken out any insurance.

Imports
Many importers assume that the suppliers are including the marine cargo insurance for free when, in fact, the cost is included in the purchase price. In addition, obtaining information from suppliers about these costs and whether they are being loaded can prove difficult.

Another important issue is the type of cover being provided - is it comprehensive 'all risks' or just 'total loss' only? Is it on a warehouse to warehouse basis or just warehouse to UK port? Without this information, importers may not realise they are paying too much for insurance which does not meet their needs, and may leave them with uninsured exposure.

A further issue is who is actually insuring the goods? The security of some overseas insurers may not compare favourably with the security of insurers in the highly regulated UK market. In the event of goods arriving damaged in the UK, the importer will probably deal with the UK agent of the overseas insurance company - an agent who will be working for the insurer, not the importer. This can lead to delays in processing and settling claims.

If the importer takes control of cargo insurance they can arrange the necessary cover in the UK market, which is often more comprehensive and price competitive than in overseas markets.

What types of cargo insurance are available?
Open Cover
This is the most usual type of cargo insurance, where a policy is drawn up to cover a number of consignments. The policy can be either for a specific value that requires renewal once the insured amount is exhausted or an permanently open policy that will be drawn up for an agreed period, allowing any number of shipments during this time.

Specific (Voyage) Policy
Although not the norm for cargo insurance, you may from time to time need to approach an insurance company (or broker, or other intermediary) to request an insurance policy for a particular consignment. This is usually referred to as Voyage Policy as the insurance covers only that specific shipment.

Contingency (seller's interest) insurance
As an exporter you may often sell goods on terms where your customer (as the importer) is responsible for insuring (or at least bearing the risk of damage of or loss to) the goods, for example under FOB and CFR Incoterms 2000. In these cases you are exposed to the risk of damage to the goods while in transit and your customer refusing to accept them. In the worse case your customer may not have insured the goods.

If this happens and your customer attempts to avoid liability, you could seek redress through the legal system. However, this can prove very expensive, and may often be pointless. Seller's interest insurance, usually for a small premium, will cover you for this contingency. For valid commercial reasons you may not wish your customer to know you have taken out such a policy.

Where can I get cargo insurance?
You can obtain cargo insurance direct from an insurance company, or some freight forwarders and other trade service intermediary. Also you may find that your bank will offer cargo insurance as part of a trade finance package. However, best practice adopted by many companies has shown that using a specialist (marine) cargo insurance broker provides value-added services when arranging cover and gives additional benefits when dealing with any claims and settlement procedures. The British Insurance Brokers’ Association (BIBA) has a search tool to help you to identify insurance brokers at http://www.biba.org.uk/consumer/findbroker.asp (Link to an external site - Disclaimer ). SITPRO does not sell cargo insurrance or recommend insurers.

What other options are open to me?
There are several other ways to approach the risk involved in the physical movement of the goods you trade across international borders:

do nothing and carry the risk yourself. If an incident occurs resulting in damage or loss to the goods you could take action against the carrier. But you should remember that carrier liability is strictly limited by internationally agreed conventions. Also you will need the expertise and perseverance to sustain a successful claim. This could have an impact on your business;
as an exporter you can let your customer insure the goods;
as an importer you can let your supplier insure the goods.
The factors you must consider for either of the final two options have been described earlier in this Briefing;

How much will it cost me?
Like all insurance cover (premises, employer's liability, credit) you will have to pay for your cargo insurance services. Premium is usually calculated according to the value of the consignment (plus a percentage mark up for profit margin), the type of goods (danger or hazard) and other specific risks (mode of transport, route, destination, etc.) from the insurer's perspective. As with all insurance cover, you should spend time researching the market and getting quotes from a range of cargo insurance providers.

Conclusion
More and more companies recognise the long term advantage of buying cargo insurance in the UK and using the services of specialist cargo insurance brokers. If you are a small or medium sized trader you need to look more closely at this area of your international trading operations. You could reap benefits for your business through enhanced protection of your interests, improved international trade administration, better trading relationships and increased competitiveness, resulting in greater profitability.

Acknowlegements
SITPRO wishes to acknowledge the valuable assistance of Willis Limited (insurance brokers) in the preparation of this guide.

Disclaimer
Whilst every effort is made to ensure that the information given herein is accurate, SITPRO Ltd. accepts no legal responsibility for any views expressed or implied or for any errors, omissions or misleading statements in that information caused by negligence or otherwise.

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The Pros & Cons of International Business
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Should you market your products internationally?
- By Peter Bugg

Are you looking for a way to expand your business? Have you considered marketing your products beyond national borders? There are many opportunities for growth that can be achieved by exporting products, services or intellectual property.

One of the first things you should do is evaluate your goals, risks, potential gain, cost and commitment to exporting your products and/or services internationally. While some companies may find entering the international market as easy as processing an international order through the Internet, others may need to build factories overseas in order to find international success. Regardless of how you enter the international market, you should do so only after researching and understanding the ramifications of international trade. This article addresses some of the basic points of consideration.

Identify Your Goals
Goals for building an export program will vary for different companies and different product lines within a company. While the goal for one product may be to expand sales, another product may have come to the end of its market life domestically, but would be viable for an emerging market in another country. Some companies may wish to sell their products in countries where they source from as a way to offset currency risk. Understanding your goals will enable you to evaluate the risk and cost you are willing to accept as part of your international program.

Risks
While there are many risks associated with international trade, the most common issues are about intellectual property rights (IPR). While IPR issues may also arise domestically, the mechanisms for protection often stop at country borders. Patent and copyright protections are specific to each country with the laws, rules and remedies varying accordingly. Consider the ramification of IPR theft on your existing business. Would sale or use of your IPR in another country hurt you? Is your product unique enough or difficult enough to reproduce to inherently protect you? You can help protect yourself from illegal fakes coming into the U.S. by registering your products with U.S. Customs at www.stopfakes.gov.

Another common risk is currency fluctuation. Currency fluctuations can cause difficulty while processing a transaction. If you are selling a product or service that will be paid immediately upon securing a contract, the risk associated with fluctuation is minimal. However, if you conduct business that has a time-lag prior to payment, a fluctuation in the exchange rate could cause deals to go sour. While currency fluctuation can be a problem during a transaction, it can also open or close markets to you by changing your competitiveness. For example, today the U.S. dollar is relatively weak when compared to many major foreign currencies. This change may have made your product competitive in an area where you were previously struggling. When conducting a competitive analysis, remember that exchange rates can fluctuate dramatically, thus changing your competitive position.

Product Evaluation
Is your product suitable for the international market? The answer may vary for different countries and will encompass many aspects of the product. The design, application, market price and name should all be considered. If the product is electrical, you must find out if it is compatible with the target country’s electric supply. Will bolt patterns or pipe connections fit standards in your target market? What about the market drivers? Many water treatment product sales are driven by regulations, as well as enforcement of those regulations. Some target countries may have regulations which would seem to create a market for your products, but if there is no enforcement, success may elude you. Find out how the regulations compare to your domestic market. For example, a wastewater disinfection system designed to meet typical U.S. regulations will be over-designed for many plants in China, and under-designed for some of the plants in Australia. Is the product design suitable? Can your product be easily adapted to meet various market needs? Will the changes be cost-effective?

Product and company names also may be an issue. Translations do not always flatter a product or company name. Local customs and slang may cause a name to be inappropriate for some markets. It is always advisable to ask a native speaker from each target country to review and comment on trade names, slogans and advertising materials.

Regulatory Considerations
Most products can be exported from the U.S. without an export license. However, weapons, chemicals and items deemed to be in conflict with foreign policy may be regulated or banned from export. Check www.bis.doc.gov/licensing/facts1.htm if you are not sure about your product’s status.

In addition to the product regulations, the U.S. government also maintains a Denied Persons List, which is list of people and entities that U.S. citizens and companies are prohibited from doing business with. This list can be viewed at www.bis.doc.gov/dpl/Default.shtm.

Tariffs and duties are another regulatory consideration. Overseas customers will evaluate your price based on landed costs. In some countries, the tariff may be excessive, rendering your product uncompetitive. Check carefully how your product will be classified under the Harmonized Tariff Schedule, and what the rate of duty will be. Fortunately, many water treatment and other environmental goods are relatively low in tariff and duty charges. Keep updated on Free Trade Agreements (FTAs), as they can help open markets that may have been blocked by tariffs in the past. The U.S. currently has FTAs with several countries and is part of an ongoing negotiation called the Free Trade Initiative, which will eliminate duty on a number of environmental goods with many countries.

Logistics
There are many ways to move products between countries. The most important consideration is accurate paperwork, particularly if your payment is secured by a Letter of Credit. One of the best ways to eliminate frustration is to utilize a good freight forwarder who fully understands the nature of your products.

Getting Paid
Payments can be secured in several ways for international trade. The most appropriate method will depend on the nature and size of each transaction. For smaller and frequent transactions, credit cards may be a viable option for you. Ask your merchant account provider to check their policies regarding international credit card acceptance, protection and fees. Before you rely on this as your preferred method of payment, check to see how many people in your target country have access to credit cards. While credit cards are widely accepted in some countries, they are not commonly available to the general public in many countries. My personal preference for international payment is Telegraphic Transfer prior to shipment. Many banks that are active in international trade are on the SWIFT network, which enables funds to be deposited directly to your account in seconds, without waiting for checks to clear.

For larger transactions, many companies will request a Letter of Credit (LC). While this is a very good tool for securing payment, I often get nervous when companies tell me how much they rely on this form of payment as being absolutely secure. The fact is that there are many ways an LC can become invalid, thus rendering your payment unsecured. When using an LC it is important to work with a bank and freight forwarder experienced in these types of transactions. Another source of payment protection is the EXIM Bank (www.exim.gov). EXIM offers credit insurance to secure payment and support trade in many countries.

Who Can Help?
The U.S. government offers a lot of information and support on exporting. There are export assistance offices located throughout the U.S. and overseas, which are ready to assist U.S. firms in securing overseas business. Visit www.export.gov for more information. Additionally, many states have their own export assistance offices. wqp

Source: Water Quality Products October 2005 Volume: 10 Number: 10

From Wikipedia, the free encyclopedia

Cost, Insurance and Freight (CIF) is a common term in a sales contract that may be encountered in international trading when ocean transport is used.

When a price is quoted CIF, it means that the selling price includes the cost of the goods, the freight or transport costs and also the cost of marine insurance. CIF is an international commerce term (Incoterm).

CIF is identical in most particulars with Cost and Freight (CFR), and the same comments apply, including its applicability only to conventional maritime transport. In addition to the CFR responsibilities, the seller under CIF must obtain in transferable form a marine insurance policy to cover the risks of transit with insurers of repute. The policy must cover the CIF price plus 10 per cent and where possible be in the currency of the contract. Note that only very basic cover is required equivalent to the Institute "C" clauses, and buyers should normally insist on an "all-risk" type of policy such as that under the Institute "A" clauses. The seller's responsibility for the goods ends when the goods have been delivered on board the shipping vessel. In the guidelines for CIF published in Incoterms 2000 the term "carrier" does not appear and it clearly states "the seller must deliver the goods on board the vessel at the port of shipment" which makes CIF the incorrect term to use where the seller wishes their responsibility to end when they deliver the goods into the hands of a carrier prior to the goods passing the ship's rail at the port of loading. In the great majority of transactions the more correct term is CIP. This term is only appropriate for conventional maritime transport, not ro/ro or international container movements.

CIF ASWP indicates that the exporter is responsible for insuring on behalf of the buyer until goods arrive and are unloaded at the port of destination. The opposite to this is FOB (Freight On Board), which means the buyer is responsible for payment to the seller when the good is loaded onto the ship at the port of origination. ASWP indicates Any Safe World Port.

A letter of credit from a different point of view
http://www.creditguru.com/guestarticleLC.htm
What is a Letter of Credit (LC)?

http://www.export911.com/e911/export/lc.htm
Different sorts of Letters of Credit
.
Following article is from Wikipedia ...
A letter of credit, often abbreviated as an LC or L/C, (the acronym LOC may also be used but this is more typically used to mean a Line of Credit) and also referred to as a documentary credit, often abbreviated as DC or D/C, documentary letter of credit, or simply as credit (in UCP 600 which is effective as from 1st July 2007) is a document issued mostly by a financial institution which provides an irrevocable payment undertaking to a beneficiary against complying documents as stated in the credit. This means that once the beneficiary or a presenting bank acting on its behalf, makes a presentation to the issuing bank or confirming bank, if any, within the expiry date of the LC, comprising documents complying with the terms and conditions of the LC, the applicable UCP and international standard banking practice, the issuing bank or confirming bank, if any, is obliged to pay irrespective of any instructions from the applicant to the contrary. In other words, the obligation to pay is shifted from the applicant to the LC issuing bank or confirming bank, if any. Non-banks can also issue LC. The LC can also be the source of payment for a transaction, meaning that an exporter will get paid by redeeming the letter of credit. Letters of credit are used nowadays primarily in international trade transactions of significant value, for deals between a supplier in one country and a wholesale customer in another. They are also used in the land development process to ensure that approved public facilities (streets, sidewalks, stormwater ponds, etc.) will be built. The parties to a letter of credit are usually a beneficiary who is to receive the money, the issuing bank of whom the applicant is a client, and the advising bank of whom the beneficiary is a client. Since nowadays almost all letters of credit are irrevocable, (i.e. cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank and the confirming bank, if any). However, the applicant is not a party to the letter of credit. In executing a transaction, letters of credit incorporate functions common to giros and Traveler's cheques Notice the following After a contract is concluded between buyer and seller, buyer's bank supplies a letter of credit to seller. Seller consigns the goods to a carrier in exchange for a bill of lading. Seller provides bill of lading to bank in exchange for payment. Seller's bank exchanges bill of lading for payment from buyer's bank. Buyer's bank exchanges bill of lading for payment from buyer. Buyer provides bill of lading to carrier and takes delivery of goods

There is also a site that explained the letter of credit in a simple way.

http://www.witiger.com/internationalbusiness/LCs.htm

This site explains it in a good and sequenced way and mentions the differences among many forms

like

Documentary Revocable Letter of Credit
Documentary Irrevocable Letter of Credit
Two forms of irrevocable credits:
o Unconfirmed credit
o Confirmed credit

Special Letters of Credit
o Back-to-Back Letter of Credit
o Deferred Payment (Usance) Letter of Credit
o Red Clause Letter of Credit
o Revolving Letter of Credit

and much more information

Also,the common problems with letters of credit.

I hope it will add something to all my friends here .

A bill of lading (also referred to as a BOL or B/L) is a document issued by a carrier, e.g. a ship's master or by a company's shipping department, acknowledging that specified goods have been received on board as cargo for conveyance to a named place for delivery to the consignee who is usually identified. A through bill of lading involves the use of at least two different modes of transport from road, rail, air, and sea. The term derives from the noun "bill", a schedule of costs for services supplied or to be supplied, and from the verb "to lade" which means to load a cargo onto a ship or other form of transport.

Straight bill of lading

This bill states that the goods are consigned to a specified person and it is not negotiable free from existing equities, i.e. any endorsee acquires no better rights than those held by the endorsor. So, for example, if the carrier or another holds a lien over the goods as security for unpaid debts, the endorsee is bound by the lien although, if the endorsor wrongfully failed to disclose the charge, the endorsee will have a right to claim damages for failing to transfer an unencumbered title.

Also known as a non-negotiable bill of lading

Order bill of lading

This bill uses express words to make the bill negotiable, e.g. it states that delivery is to be made to the further order of the consignee using words such as "delivery to A Ltd. or to order or assigns". Consequently, it can be endorsed by A Ltd. or the right to take delivery can be transferred by physical delivery of the bill accompanied by adequate evidence of A Ltd.'s intention to transfer.

Also known as a negotiable bill of lading.

Bearer bill of lading

This bill states that delivery shall be made to whosoever holds the bill. Such bill may be created explicitly or it is an order bill that fails to nominate the consignee whether in its original form or through an endorsement in blank. A bearer bill can be negotiated by physical delivery.

Free On Board (FOB) is an incoterm -- also commonly but incorrectly referred to as "Freight on Board". It means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays freight, insurance, unloading costs and transportation from the port of destination to the factory. The passing of risks occurs when the goods pass the ship's rail at the port of shipment. Internationally the term specifies the port of loading, e.g. "FOB New York" or "FOB Vancouver".

For example, in the USA it is still used as a left-over of the long-discontinued "Foreign Trade Definitions" of 1941, with at least four different versions which can lead to confusion.

Domestically within the United states and Canada, the term is used in two common phrases, "FOB shipping point" and "FOB destination," to distinguish when the title of goods passes from the seller to the buyer. Under the terms of "FOB shipping point," the title of the goods passes to the buyer at the shipping point. Similarly, under the terms of "FOB destination", the title of the goods passes to the buyer when the goods arrive at their destination. The distinction is important because it determines who pays for the shipping costs of the merchandise: whoever holds the title to the merchandise at the time of its shipping pays for its transportation costs unless otherwise noted (e.g., freight prepaid or freight collect). Also, it is important that if the shipment is damaged while traveling the owner must file the freight claim.

Note that this usage is inconsistent with the official Incoterm definitions, and should not be used for international shipping. North American FOB definitions correspond to Incoterm approximately as follows:

1-FOB shipping point or FOB shipping point, freight collect: FCA shipping point

2-FOB shipping point, freight prepaid: CPT destination

3-FOB destination or FOB destination, freight prepaid: DDU destination

4-FOB destination, freight collect: not commonly used, no Incoterm equivalent

eCommerce

With the advent of e-commerce, most commercial electronic transactions occur under the terms of "FOB shipping point" or "FCA shipping point". Most analysts see this as a disadvantage of online shopping compared to traditional in-person purchasing, where "FOB destination" is more prevalent. When counting inventory, merchandise in transit plays a cruc. If it does, then they are added to the inventory count, but not the balance sheet. If not, they are treated as would items under consignment meaning they still belong to the supplier (consignor).

Form of Agreement, Forms of Performance Security, and Guarantee for Advance Payment
Form of Agreement
Forms of Performance Security and
Bank Guarantee for Advance Payment
Performance Bank Guarantee (Unconditional)
Performance Bank Guarantee (Conditional)
Performance Bond
Bank Guarantee for Advance Payment

Form of Agreement

AGREEMENT

THIS AGREEMENT made the _____ day of _________ 20____ between _______________ of ___________ (hereinafter called "the Employer") of the one part and _____________________ of ______________ hereinafter called "the Contractor") of the other part.

WHEREAS the Employer is desirous that certain Works should be executed by the Contractor, viz., _______, and has accepted a Bid by the Contractor for the execution and completion of such Works and the remedying of any defects therein.

NOW THIS AGREEMENT WITNESSETH as follows:

1. In this Agreement, words and expressions shall have the same meanings as are respectively assigned to them in the Conditions of Contract hereinafter referred to.

2. The following documents shall be deemed to form and be read and construed as part of this Agreement, and the priority of the documents shall be as follows:

(a) the Letter of Acceptance;
(b) the said Bid and Appendix to Bid;
(c) the Conditions of Contract (Part II);
(d) the Conditions of Contract (Part I);
(e) the Specifications;
(f) the Drawings;
(g) the Priced Bill of Quantities; and
(h) other documents, as listed in the Appendix to Bid

3. In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to execute and complete the Works and remedy any defects therein in conformity in all respects with the provisions of the Contract.

4. The Employer hereby covenants to pay the Contractor in consideration of the execution and completion of the Works and the remedying of defects therein the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract.

IN WITNESS whereof the parties hereto have caused this Agreement to be executed the day and year first before written.

The Common Seal of __________________ was hereunto affixed in the presence of:

_______________ or _____________________

Signed, sealed, and delivered by the said ______________

in the presence of: _____________________

Binding Signature of Employer ___________________________

Binding Signature of Contractor __________________________


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Forms of Performance Security and
Bank Guarantee for Advance Payment

Samples of acceptable forms of performance security are annexed. Bidders should not complete the forms at this time. Only the successful bidder will be required to provide performance security in accordance with one of the samples, or in a similar form acceptable to the Employer.

Annex A Form: 60
Alternative 1 - Performance Bank Guarantee (Unconditional)

Alternative 2 Performance Bank Guarantee (Conditional)

Alternative 3 Performance Bond

Annex B Form: 61
Bank Guarantee for Advance Payment


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Annex A Form: Alternative 1

Performance Bank Guarantee 62

________________________________ [Bank’s Name, and Address of Issuing Branch or Office]

Beneficiary: ___________________ [Name and Address of Employer]

Date: ________________

PERFORMANCE GUARANTEE No.: _________________

We have been informed that [name of Contractor] (hereinafter called "the Contractor") has entered into Contract No. [reference number of the contract] dated with you, for the execution of [name of contract and brief description of Works] (hereinafter called "the Contract").

Furthermore, we understand that, according to the conditions of the Contract, a performance guarantee is required.

At the request of the Contractor, we [name of Bank] hereby irrevocably undertake to pay you any sum or sums not exceeding in total an amount of [amount in figures] ( ) [amount in words],[1] such sum being payable in the types and proportions of currencies in which the Contract Price is payable, upon receipt by us of your first demand in writing accompanied by a written statement stating that the Contractor is in breach of its obligation(s) under the Contract, without your needing to prove or to show grounds for your demand or the sum specified therein.

This guarantee shall expire no later than twenty-eight days from the date of issuance of the Taking-Over Certificate, calculated based on a copy of such Certificate which shall be provided to us, or on the ___ day of ______, 2___,[2] whichever occurs first. Consequently, any demand for payment under this guarantee must be received by us at this office on or before that date.

This guarantee is subject to the Uniform Rules for Demand Guarantees, ICC Publication No. 458, except that subparagraph (ii) of Sub-article 20(a) is hereby excluded.

_____________________
[signature(s)]



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[1] The Guarantor shall insert an amount representing the percentage of the Contract Price specified in the Contract and denominated either in the currency(ies) of the Contract or a freely convertible currency acceptable to the Employer.

[2] Insert the date twenty-eight days after the expected completion date. The Employer should note that in the event of an extension of the time for completion of the Contract, the Employer would need to request an extension of this guarantee from the Guarantor. Such request must be in writing and must be made prior to the expiration date established in the guarantee. In preparing this guarantee, the Employer might consider adding the following text to the form, at the end of the penultimate paragraph: “The Guarantor agrees to a one-time extension of this guarantee for a period not to exceed [six months][one year], in response to the Employer’s written request for such extension, such request to be presented to the Guarantor before the expiry of the guarantee.”




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Annex A Form: Alternative 2

Performance Bank Guarantee (Conditional) 64

THIS AGREEMENT is made on the __________ day of __________ 20 __________ between [name of bank] of [address of bank] (hereinafter called "the Guarantor") of the one part and [name of Employer] of [address of Employer] (hereinafter called "the Employer") of the other part.

WHEREAS

(1) this Agreement is supplemental to a contract (hereinafter called the "Contract") made between [name of Contractor] of [address of Contractor] (hereinafter called "the Contractor") of the one part and the Employer of the other part whereby the Contractor agreed and undertook to execute the Works of [name of Contract and brief description of the Works] for the sum of [amount in Contract currency] being the Contract Price; and

(2) the Guarantor has agreed to guarantee the due performance of the Contract in the manner hereinafter appearing.

NOW, THEREFORE, the Guarantor hereby agrees with the Employer as follows:

(a) If the Contractor (unless relieved from the performance by any clause of the Contract or by statute or by the decision of a tribunal of competent jurisdiction) shall in any respect fail to execute the Contract or commit any breach of his obligations thereunder, then the Guarantor will indemnify and pay the Employer the sum of [amount of Guarantee], [amount in words],65 such sum being payable in the types and proportions of currencies in which the Contract Price is payable, provided that the Employer or his authorized representative has notified the Guarantor to that effect and has made a claim against the Guarantor before a date 28 days after the issue date of the Taking-Over Certificate.

(b) The Guarantor shall not be discharged or released from his guarantee by an arrangement between the Contractor and the Employer, with or without the consent of the Guarantor, or by any alteration in the obligations undertaken by the Contractor, or by any forbearance on the part of the Contractor, whether as to the payment, time, performance, or otherwise, and any notice to the Guarantor of any such arrangement, alteration, or forbearance is hereby expressly waived.

This Guarantee shall be valid until a date 28 days from the date of issue of the Taking-Over Certificate.

Given under our hand on the date first mentioned above.

SIGNED BY __________________________________________ for and on behalf of the Guarantor in the presence of: __________________________________________ (Witness)

SIGNED BY __________________________________________ for and on behalf of the Guarantor in the presence of: __________________________________________ (Witness)


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Annex A Form: Alternative 3

Performance Bond 66

By this Bond [name and address of Contractor] as Principal (hereinafter called "the Contractor") and [name, legal title, and address of Surety, bonding company, or insurance company] as Surety (hereinafter called "the Surety"), are held and firmly bound unto [name and address of Employer] as Obligee (hereinafter called "the Employer") in the amount of [amount of Bond], [amount in words] ,67 for the payment of which sum well and truly to be made in the types and proportions of currencies in which the Contract Price is payable, the Contractor and the Surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.

WHEREAS the Contractor has entered into a written Agreement with the Employer dated the __________ day of , __________ 20__________ , for [name of Contract] in accordance with the documents, plans, specifications, and amendments thereto, which to the extent herein provided for, are by reference made part hereof and are hereinafter referred to as the Contract.

NOW, THEREFORE, the Condition of this Obligation is such that, if the Contractor shall promptly and faithfully perform the said Contract (including any amendments thereto), then this obligation shall be null and void; otherwise, it shall remain in full force and effect. Whenever the Contractor shall be, and declared by the Employer to be, in default under the Contract, the Employer having performed the Employer's obligations thereunder, the Surety may promptly remedy the default, or shall promptly:

(1) complete the Contract in accordance with its terms and conditions; or

(2) obtain a Bid or bids from qualified Bidders for submission to the Employer for completing the Contract in accordance with its terms and conditions, and upon determination by the Employer and the Surety of the lowest responsive Bidder, arrange for a Contract between such Bidder and Employer and make available as work progresses (even though there should be a default or a succession of defaults under the Contract or Contracts of completion arranged under this paragraph) sufficient funds to pay the cost of completion less the Balance of the Contract Price; but not exceeding, including other costs and damages for which the Surety may be liable hereunder, the amount set forth in the first paragraph hereof. The term "Balance of the Contract Price," as used in this paragraph, shall mean the total amount payable by Employer to Contractor under the Contract, less the amount properly paid by Employer to Contractor; or

(3) pay the Employer the amount required by Employer to complete the Contract in accordance with its terms and conditions up to a total not exceeding the amount of this Bond.

The Surety shall not be liable for a greater sum than the specified penalty of this Bond.

Any suit under this Bond must be instituted before the expiration of one year from the date of the issuing of the Taking-Over Certificate.

No right of action shall accrue on this Bond to or for the use of any person or corporation other than the Employer named herein or the heirs, executors, administrators, successors, and assigns of the Employer.

In testimony whereof, the Contractor has hereunto set his hand and affixed his seal, and the Surety has caused these presents to be sealed with his corporate seal duly attested by the signature of his legal representative, this _____ day of ______________ 20_____.

SIGNED ON ______________ on behalf of __________________________________

By _____________________ in the capacity of ________________________________

In the presence of _______________________________________________________

SIGNED ON ______________ on behalf of __________________________________

By _____________________ in the capacity of ________________________________

In the presence of _______________________________________________________




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Annex B Form

Bank Guarantee for Advance Payment

[Bank’s Name, and Address of Issuing Branch or Office]

Beneficiary: ___________________ [Name and Address of Employer]

Date: ________________

ADVANCE PAYMENT GUARANTEE No.: _________________

We have been informed that [name of Contractor] (hereinafter called "the Contractor") has entered into Contract No. [reference number of the contract] dated ______ with you, for the execution of [name of contract and brief description of Works] (hereinafter called "the Contract").

Furthermore, we understand that, according to the conditions of the Contract, an advance payment in the sum [amount in figures] ( ) [amount in words] is to be made against an advance payment guarantee.

At the request of the Contractor, we [name of Bank] hereby irrevocably undertake to pay you any sum or sums not exceeding in total an amount of [amount in figures] ( ) [amount in words][1] upon receipt by us of your first demand in writing accompanied by a written statement stating that the Contractor is in breach of its obligation under the Contract because the Contractor used the advance payment for purposes other than the costs of mobilization in respect of the Works.

It is a condition for any claim and payment under this guarantee to be made that the advance payment referred to above must have been received by the Contractor on its account number ___________ at _________________ [name and address of Bank].

The maximum amount of this guarantee shall be progressively reduced by the amount of the advance payment repaid by the Contractor as indicated in copies of interim statements or payment certificates which shall be presented to us. This guarantee shall expire, at the latest, upon our receipt of a copy of the interim payment certificate indicating that eighty (80) percent of the Contract Price has been certified for payment, or on the ___ day of _____, 2___,[2] whichever is earlier. Consequently, any demand for payment under this guarantee must be received by us at this office on or before that date.

This guarantee is subject to the Uniform Rules for Demand Guarantees, ICC Publication No. 458.

_____________________
[signature(s)]



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[1] The Guarantor shall insert an amount representing the amount of the advance payment and denominated either in the currency(ies) of the advance payment as specified in the Contract, or in a freely convertible currency acceptable to the Employer.

[2] Insert the expected expiration date of the Time for Completion. The Employer should note that in the event of an extension of the time for completion of the Contract, the Employer would need to request an extension of this guarantee from the Guarantor. Such request must be in writing and must be made prior to the expiration date established in the guarantee. In preparing this guarantee, the Employer might consider adding the following text to the form, at the end of the penultimate paragraph: “The Guarantor agrees to a one-time extension of this guarantee for a period not to exceed [six months][one year], in response to the Employer’s written request for such extension, such request to be presented to the Guarantor before the expiry of the guarantee.”







_________________
Footnotes:

60. The Employer should select one or more of the alternatives indicated and include it (them) in the bidding documents prior to issue.

61. The Employer should omit annex B if no Advance Payment is to be provided.

62. The bank guarantee has the merit of simplicity and of being universally known and accepted by commercial banks. The contracting community, however, strongly objects to this type of security because the guarantee can be called (or threatened to be called) by Employers without justification. Employers should recognize the contractual conditions governing nonperformance by the Contractor and should normally act only on the advice of the Engineer in calling a performance guarantee. Any unjustified calling of a bank guarantee, or unreasonable pressure exercised by an Employer, would be regarded by IBRD as contrary to the spirit and basic principles of international procurement. This type of guarantee is called a "bond" in a number of countries; however, it should be distinguished from the U.S.-style "performance bond" as shown in Alternative 3.

64. The triggering of this form of performance guarantee is conditional (see sub-clause (a) of the Guarantee) upon the Contractor "failing to execute the Contract or committing a breach of his obligations thereunder" and requires a statement by the Employer and/or the Engineer to that effect and an exercise of judgment by the Guarantor as to whether the required conditions of default have been fulfilled. Some forms of guarantee contain further qualifying conditions and are not triggered until an agreement has been reached on the amount of damages payable, or until an award has been made under the applicable settlement of disputes procedures. The construction industry favors this form of guarantee over the unconditional guarantee whenever it is available. However, not all commercial banks (as Guarantors) are willing to issue conditional guarantees, and not all Employers are prepared to accept this form of performance security.

65. An amount is to be inserted by the Guarantor, representing the percentage of the Contract Price specified in the Contract, and denominated either in the currency(ies) of the Contract or in a freely convertible currency acceptable to the Employer.

66. This form of bond corresponds to the North American practice, and should not be interpreted in the context of a "bond," as known in some other countries. Other forms of bonds, such as those prepared by ICC, may be used, provided they are acceptable to the Employer. As with the conditional bank guarantee, the wording of some bonds may be such that a default has to be established by a third party to trigger action by the Surety.

67. An amount is to be inserted by the Surety, representing the percentage of the Contract Price specified in the Contract and denominated either in the currency(ies) of the Contract or in a freely convertible currency acceptable to the Employer.

Performance Bank Guarantee (Conditional)

THIS AGREEMENT is made on the __________ day of __________ 20 __________ between [name of bank] of [address of bank] (hereinafter called "the Guarantor") of the one part and [name of Employer] of [address of Employer] (hereinafter called "the Employer") of the other part.

WHEREAS

(1) this Agreement is supplemental to a contract (hereinafter called the "Contract") made between [name of Contractor] of [address of Contractor] (hereinafter called "the Contractor") of the one part and the Employer of the other part whereby the Contractor agreed and undertook to execute the Works of [name of Contract and brief description of the Works] for the sum of [amount in Contract currency] being the Contract Price; and

(2) the Guarantor has agreed to guarantee the due performance of the Contract in the manner hereinafter appearing.

NOW, THEREFORE, the Guarantor hereby agrees with the Employer as follows:

(a) If the Contractor (unless relieved from the performance by any clause of the Contract or by statute or by the decision of a tribunal of competent jurisdiction) shall in any respect fail to execute the Contract or commit any breach of his obligations thereunder, then the Guarantor will indemnify and pay the Employer the sum of [amount of Guarantee], [amount in words],65 such sum being payable in the types and proportions of currencies in which the Contract Price is payable, provided that the Employer or his authorized representative has notified the Guarantor to that effect and has made a claim against the Guarantor before a date 28 days after the issue date of the Taking-Over Certificate.

(b) The Guarantor shall not be discharged or released from his guarantee by an arrangement between the Contractor and the Employer, with or without the consent of the Guarantor, or by any alteration in the obligations undertaken by the Contractor, or by any forbearance on the part of the Contractor, whether as to the payment, time, performance, or otherwise, and any notice to the Guarantor of any such arrangement, alteration, or forbearance is hereby expressly waived.

This Guarantee shall be valid until a date 28 days from the date of issue of the Taking-Over Certificate.

Given under our hand on the date first mentioned above.

SIGNED BY __________________________________________ for and on behalf of the Guarantor in the presence of: __________________________________________ (Witness)

SIGNED BY __________________________________________ for and on behalf of the Guarantor in the presence of: __________________________________________ (Witness)


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