Bank guarantees on a subcontract - what should I check?
Three things: the combined total (market position is 5% of the subcontract sum across ALL security - guarantees plus cash retention counted together), the conditions for having them returned (tied to your practical completion and defects period, not the head contract's), and the fact that an unconditional guarantee can usually be called without proving anything first - which makes the notice terms around recourse the clause that actually protects you.
Unconditional means unconditional
An unconditional bank guarantee is as good as cash in the builder's hands: the bank pays on presentation, and your remedy comes afterwards, arguing about money that has already left. That is the commercial design, and courts have generally been reluctant to stop a call on clear drafting. So the protection worth negotiating is not the guarantee's conditions - it is the recourse clause around it: written notice before any call, a stated period to respond, and recourse limited to amounts genuinely due under this subcontract.
Watch the expiry mechanics too. Guarantees with no expiry date, or return conditioned on a certificate in the builder's discretion, have a way of being held long after the defects period ends - working capital you cannot use, securing obligations that finished months ago.
The combined cap is the number that matters
Contracts often take 5% cash retention AND two guarantees of 2.5% each - 10% total security, described in separate clauses so no single number looks aggressive. The market position is 5% combined across all forms. Add every security instrument in the contract together before deciding whether the ask is reasonable, and negotiate the total, not the pieces.
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Can the builder call my bank guarantee without warning?
Under many clauses, effectively yes - that's what unconditional means, and the bank will pay on presentation. Your protection is drafting: a requirement for written notice of intention to have recourse, a response window, and recourse limited to amounts actually due. If the clause has none of that, price the risk accordingly.
Guarantees or cash retention - which should I prefer?
Guarantees usually cost a facility fee but keep cash in your business; retention is interest-free money you've already earned sitting in someone else's account, unsecured if they fail. Most subbies who can obtain guarantees prefer them - but the combined cap and the return triggers matter more than the form.
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General information for Australian subcontractors, not legal advice — statutory deadlines and details vary by state and change over time; verify them before relying on them. Written by Mat Kennedy at The Construction Contracts Co.