Bank guarantee cost calculator
A bank guarantee costs commission, an issuance fee and, where the bank blocks cash, the opportunity cost of that margin. Commission is charged on the guarantee amount, not the contract value, for each year of validity. All rates in this calculator are examples to replace with your bank's quote.
On this page
How the cost is built
Enter the contract value and the percentage the guarantee covers. You choose the percentage and label it as an advance payment, performance or retention bond; the calculator treats them alike. The validity is the construction period plus the defects period, in months, which you enter.
Commission is the guarantee amount × the annual rate × months ÷ 12. The issuance fee is a one-off amount. If the bank blocks a cash margin, the calculator takes that share of the guarantee amount and prices the cash you cannot use at an opportunity cost per year over the same months. The total is the sum of the three, and the calculator also shows it as a percentage of the contract value.
| Step | Working | Result (AED) |
|---|---|---|
| Guarantee amount | 4,800,000 × 10% | 480,000.00 |
| Validity | 12 + 12 months | 24 months |
| Commission | 480,000 × 1.5% × 24 ÷ 12 | 14,400.00 |
| Issuance fee | Entered | 500.00 |
| Cash margin blocked | 480,000 × 10% | 48,000.00 |
| Opportunity cost | 48,000 × 6% × 24 ÷ 12 | 5,760.00 |
| Total cost | 14,400 + 500 + 5,760 | 20,660.00 |
| Share of contract | 20,660 ÷ 4,800,000 | 0.43% |
What this page does not claim
It does not state typical bank rates, fees or margin percentages for the UAE. The 1.5%, AED 500, 10% and 6% in the example are placeholders. It does not include VAT on bank charges. The FTA guide confirms construction services are taxed at 5% but this page does not cover the VAT treatment of bank fees.
Why the guarantee matters to cash flow
A guarantee on an advance payment or on performance has a price, and a cash margin ties up working capital. Tender for it deliberately: put the cost in the costing sheet rather than finding it later. See the advance payment guarantee and performance guarantee entries, and the tendering and costing guide.
Where it fits in SupaJack Construct
SupaJack Construct tracks advance and performance guarantees as memorandum items against the project, in interim payments. Payment terms and the costing sheet sit in projects and tenders. Related calculators: payment certificate calculator, retention calculator, advance payment recovery calculator, VAT calculator, variation order calculator, extension of time calculator, delay damages calculator, price escalation calculator, BOQ line total calculator, subcontractor payable calculator.
Worked example
A AED 4,800,000 contract needs a 10% guarantee, which is AED 480,000, valid for 12 months of construction and 12 months of defects. At an example commission of 1.5% a year the commission is 480,000 × 1.5% × 24 ÷ 12 = AED 14,400. Adding a AED 500 issuance fee and AED 5,760 of opportunity cost on a AED 48,000 cash margin gives AED 20,660, which is 0.43% of the contract.
Questions people ask
What does a bank guarantee cost?
Typically commission, an issuance fee and sometimes a blocked cash margin. The amounts come from your bank's quote, not from this page.
Is commission charged on the contract value?
No. It is charged on the guarantee amount, for the validity period. The calculator applies the annual rate × months ÷ 12.
Which guarantee types does it cover?
Any: advance payment, performance or retention bond. You choose the percentage and the calculator prices it the same way.
What validity should I enter?
The construction period plus the defects period in months, or whatever your guarantee wording states.
Are the default rates market rates?
No. They are examples. Replace them with your bank's quote.
What is the cash margin?
Cash the bank holds as security against the guarantee. Entering 0% means no margin is blocked.
What is the opportunity cost of the margin?
The yearly return you give up on cash you cannot use. You set the rate, usually your cost of funds.
Does the total include VAT?
No. Ask your bank and tax adviser how VAT applies to the charges.
Why show the cost as a percentage of the contract?
So you can price it into the tender and compare guarantee options on the same basis.
Does SupaJack Construct issue guarantees?
No. It tracks advance and performance guarantees as memorandum items on the project. The bank issues them.