Parent company guarantees

A parent company guarantee (PCG) is a guarantee given by one contracting party's ultimate or intermediate holding company in favour of the other contracting party to secure the performance of that party's obligations under the contract.

When would a PCG be used?

In construction, parent companies most commonly give guarantees to bolster the financial credibility of their subsidiary companies. If one of its subsidiaries has entered into a commercial contract with a third party, that third party may want to ensure the performance of the contract and will look to other companies within the same group to give a financial or performance guarantee in respect of those obligations. It gives an extra level of comfort in respect of the obligations which that subsidiary company has undertaken to perform. See Practice Note: Parent company guarantees (PCGs) in construction.

PCGs are commonly used by employers to give them protection in the event of contractor default. This protection will cover the employer if the contractor breaches the building or engineering contract or, in most circumstances, upon the contractor's insolvency. In construction, PCGs are commonly issued by the

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