Episode 9

Summary

In the video, Patricia discusses parent company guarantees - documents where a parent company promises to step in if their subsidiary construction company breaches a contract or goes insolvent. She notes that developers increasingly demand these guarantees upfront, seeing them as providing security, but questions whether they are really worth the hassle.

Patricia explains what parent company guarantees are, why developers want them, and their limitations - they rely on the financial stability of the parent company and don't provide all the protections developers presume.

She advises understanding their purpose in your contracting strategy. Patricia also covers alternatives like comfort letters if a contractor's parent company refuses to provide a guarantee, and questions whether the proliferation of guarantees helps or harms construction groups.

Takeaways:

1. Parent company guarantees provide a sense of security for the developer/employer, but they are not an absolute guarantee. The financial stability of the parent company is crucial - if the parent company is not financially strong, the guarantee may not be worth much.

1. Parent company guarantees and indemnities have different purposes. Guarantees only kick in if the subsidiary defaults, while indemnities are primary obligations independent of the contract. It's important to understand the difference when drafting these agreements.

1. If the contractor refuses to provide a parent company guarantee, alternatives like comfort letters or letters of support can provide some assurance, although they lack the legal force of a guarantee. Weighing the benefits against the challenges of obtaining a guarantee is an important part of the negotiation.

In this episode:

00:00:08 What are Parent Company Guarantees?

00:00:39 Parent Company Guarantees

00:04:19 Should you add a parent company guarantee to your contract?

00:08:18 What is a Parent Company Guarantee?

00:17:14 Parent Company Guarantees

00:21:22 Parent Company Guarantee and Indemnity

00:29:46 Democracy in the Age of Trump

Quotes

1. "Gone are the days when the contract would say may. We'll say an employer may ask for a parent company guarantee." - Patricia Haywood

2. "In today's market, there is a change. People want the parent company guarantee to be executed at the same time that they execute the contract." - Patricia Haywood

3. "I know of some developers and employers who will go far to get a parent company guarantee and I'm wondering, how far will you go? Would you pay to have a parent company give you a guarantee?" - Patricia Haywood

Please leave a review and send Patricia some feedback on Linkedin @patriciahaywoodesq