Pros and cons of using indemnity insurance over guarantee letters in tenders


In order to make a public tender and ensure that the undertaking is conducted in accordance with the contract and tender provision, in public administration, the right to implementation of material sanctions is given by “guarantees.” Guarantees are the instrument used to compensate for the financial risks faced by administrators in the tender and contracting process.

Among the values that can be accepted as collateral in our tender system are “letters of guarantee issued by banks and private financial institutions.” As a new type of guarantee, it is known that “indemnity insurance” is planned to be used as a guarantee letter (See: ekonomi/turkiyede-kefalet-sigortasi-piyasasi-hizla-buyuyecek-haberi-384415). This system, which is planned to pass as a new application within the tender system, needs to be examined in all its aspects.

Indemnity insurance means that the borrower is the guarantor of the debts or the other undertakings related to these debts. Within the scope of the contract made by the person who will participate in the contract or sign the contract and the insurance company, if the insurer gives the surety bond to an administration, an indemnity insurance contract can be made. “Indemnity insurance guarantees” planned to be given to insurance companies are: advance payment coverage, construction / maintenance / repair coverage, participation in attendance (temporary guarantee), payment assistance, performance bond or contract guarantee and public tenders guarantee.

Administration, tender and contracts against the aforementioned risks, the insurance companies that issue “insurance for surety” can claim compensation. It is understood that the insurance companies may also require the insurer to take necessary precautions (after carrying out the necessary examinations) and to pay for the damages without waiting for the insurer’s response. In addition, it is understood that the maximum amount of compensation that the insurance company will pay does not exceed the amount of the compensation as stipulated in the policy.

The insurer shall be able to collect all expenses necessary for the compensation of the guarantees provided by the guarantor, based on the company’s balance sheet, income statement, statement of accounts and any other cash or non-cash loan relationships based on the independent audit report.

The following assumptions can be reached when we evaluate bank guarantee letters and indemnity insurance institutions together:

The General Conditions of Guarantee Insurance have been published and the method of use in the auctions has been noted. However, the tender legislation does not include a statement that “indemnity insurance” can be accepted as a guarantee. Therefore, administrations claiming this guarantee are not correct unless the law is amended.

· To receive a bank letter of guarantee, it is necessary that the bank has a portfolio in question. Banks are able to provide a letter of guarantee to customers who closely obey the credit limit. Indemnity insurance will ensure that insurance companies are covered by inspecting their cash and non-cash assets. However, if it is taken into account that it takes place no later than 40 days after the tender has been announced, the delay in the issuance of indemnity may prevent some companies from participating in the tender.

Bank letters of guarantee are received within the same day as bank branches and certain types of elements will be approved as such. It is not known how to establish a system that operates with the same credibility and speed for indemnity insurance.

A bank guarantee is given by examining the “economic and financial qualifications” of the demanders. Within the scope of indemnity insurance, it is stated that besides “economic and financial qualifications” of tenderers, an examination of “vocational and technical competencies” will be provided. (See Melike Gozusirin, Treasury Undersecretariat of the Prime Ministry, 2014-4 dated Aug. 2014). However, each of the insurance companies examine tender documents of varying qualities. This means that tender inspection departments should be established before the insurance companies.

If the insurance companies or the owners or partners of the insurance companies that will issue indemnity insurance participate in the tender, it is not known what measures will be taken to prevent unfair competition. Furthermore, if these companies participate in the tender, the cost and reliability of the guarantee will be doubtful.

It is understood that when a bank credit limit is taken into account by taking into account the asset of the customers in the bank guarantee letters, the indemnity insurance can be made without being bound to the credit limit. This will be more advantageous for those who do not want to use the credit limit in the bank but those who are able to provide a guarantee in various forms for the insurance company.

The fact that the planned system and the contracting process are not complicated, but that all the risks are not collected under one insurance transaction, which is simplified, causes time and financial loss to administrations and malicious contractors to gain material benefits.

As a result, in the regulations, the obligation of the bank in the bank guarantee letters, undertaking the insurance company in indemnity insurance, the use of “indemnity insurance” as a “guarantee” is planned. On the contrary, a system that has never been tested should be introduced with a misplaced field illusion, pilot applications and trial-and-error analysis of benefits and legal arrangements should be made after the results of these operations are known. Otherwise, it may lead to the loss of public interest and tender proceedings.

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