Parent company guarantees (PCGs) in construction

The following Construction practice note provides comprehensive and up to date legal information covering:

  • Parent company guarantees (PCGs) in construction
  • What is a Guarantee?
  • What is a PCG?
  • Requirements for a valid PCG
  • Writing and signature
  • Parties to a PCG
  • Subject matter of a PCG in construction
  • Relationship between the PCG and the Principal Agreement
  • Primary obligor wording
  • Types of primary obligation
  • More...

Parent company guarantees (PCGs) in construction

In the construction industry, parent company guarantees (PCGs) are commonly given to the employer by the main contractor’s holding company to guarantee the performance of the contract by the subsidiary main contractor. This is a requirement in almost every construction contract where the contractor has a parent. Most frequently, contractors are required to provide a PCG, executed by their parent, at the time of contract signing. Recourse against the parent under the guarantee will thereby be available to the employer if the contractor defaults.

PCGs are found in certain other situations in construction. Occasionally, in some bespoke construction contracts, the guarantor will be a party to the contract itself, but only for the purpose of providing the guarantee. Sometimes collateral warranties are required to be given by contractors to lenders that contain PCG provisions but these are typically resisted. Also, guarantees may sometimes be given to contractors (or subcontractors) by, for example, a developer’s holding company: this is done to secure payments due under the contract. In a similar way, parent companies sometimes agree to provide guarantees to secure advance payments of the contract price to contractors.

A PCG rarely provides protection from the contractor’s insolvency as such, because contractor groups as a whole are likely to be affected when a contractor within that group is insolvent.

Construction contracts involve long term

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