Guarantee of performance bonds
Guarantee performance bond commitments made by credit institutions or financing companies
The purpose of the guarantee of performance bonds is to honour, in the case of the failure of a bank or a financing compagny, the guarantee commitments given to it by business professionals (builders, travels agents, insurance brokers, etc.) who are required by law to provide a guarantee to their customers.
The business professionals in question:
- either hold funds received from their customers for the purpose of delivering them to third parties to whom such funds are owed; or
- must ensure the proper completion of a service which they have agreed to provide to their customers and for which they have been paid.
This guarantee of performance mechanism applies when two conditions are met simultaneously:
- the institution that issued the performance bond on behalf of the profession has failed and can no longer fulfil the commitment given by it;
- the performance bond is called, i.e. the professional for which the performance bond was issued has not fulfilled its obligations vis-à-vis its own customers who, in order to seek compensation, call on the bank or the financing company that issued the performance bond in favour of this defaulting profession.
In this case, the FGDR intervenes by compensating, in place of the bank or financing company that issued the performance bond, the customers injured as a result of the professional's default.
Guarantee of performance bonds: 344 members covered
All credit institutions whose head office is located in France or the Principality of Monaco which are authorised to issue mandatory performance bonds are members of the performance bond scheme. Membership in this scheme is a prerequisite for conducting this business in France.
The change of status for financial companies and the creation of the new status of "financing company" (Article 34 of Order 2013-544 of 27 June 2013 on credit institutions and financing companies) impacted the number and types of institutions that are members of the deposit guarantee scheme and the guarantee of performance bonds scheme. Since the reform of 2013, a number of financing companies are authorised to issue performance bonds. They are direct members only of the performance bonds scheme.
The guarantee of mandatory guarantees delivered covers several types of performance bonds
The main performance bonds covered are as follows (not a complete list):
- performance bonds issued by a builder;
- completion bonds in case of sale of a building prior to completion (VEFA);
- payment guarantees that must be provided by the successful bidder of a labour contract;
- repayment guarantees that must be provided by numerous business professionals who receive funds from their customers intended for third parties (attorneys, real estate agents, property administrators, travel agents, tour operators, tourism accommodation and activities managers, passenger transport companies, insurance brokers, etc.).
This decree was codified in Article D. 313-26 of the Monetary and Financial Code.
Performance bonds scheme: protection for all customers
The guarantee of performance bonds scheme benefits all end customers of the professions listed above in cases where the professional fails to fulfil its obligations to them and the credit institution or the financing company that issued the performance bond has itself failed.
If the bank or financial institution fails, the FGDR takes over and honours the performance bond until the project is completed.
If the professional defaults vis-à-vis his/her customer, the FGDR compensates the customer. The compensation is capped at 90% of the harm sustained by the customer, with a deductible amount of €3000payable by the end customer.