Study On Bank Guarantee Mechanism For Engineering

Credit risk is one of the risks in construction procedure. It is necessary to restrict contractors and developers' conduct by setting practical assurance or risk-transfer system. According to practice in developed countries, guarantee/bond is proved to be an effective way to solve problems caused by credit risk of participators due to information asymmetry.Game theory and credit rationing are the key theory of economics used to analyze the immanent motivation of contractors or developers' breach of faith. As per practice in developed countries and author's working experience in intermediary business of China Construction Bank, it analyses the way for native banks to take advantage of their strength to select the types of guarantee products and their routine operation management, which provides frame of reference to put guarantee/bond into practice in our country.Currently, it is highly recommended that native banks shall take developer/owner's payment guarantee, contractor's implementation guarantee/bond, contractor's payment guarantee/bond and advance payment guarantee/bond as key products of intermediary business. Problems were analysed in project contracting, contract striking and implementing and the negative consequences brought about by those problems against each party, even our society. According to bidding and implementing process of construction project, information discrepancy and moral risks between sponsors and contractors, implementing and perfecting Construction Project Guarantee/bond is vital and essential. Furthermore, researches were conducted on preliminary procedures, pricing, contract review and follow-up management of guarantee/bond and suggests solutions and strategies especially for those problems.