2026/27 FINANCIAL POLICIES · Attachment 10 - Financial Securities (Bonds and Guarantees) Policy

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Attachment 10 – Financial Securities (Bonds and Guarantees)

 •   Only unconditional financial securities will be accepted as they are not a secondary obligation and
     are therefore not dependent upon Council proving breach of the obligation
 •   The security shall not have an expiry date. Bank guarantees are invalid and unenforceable after
     their termination dates even if the obligation has not been performed or the work is yet to be
     completed. Therefore, Council will not accept bank guarantees with a termination date
 •   Their real value is sometimes not known until a call is made for the cash to be paid out in the
     event of a breach of an obligation. A call up of a financial security involves Council requesting a
     cash payment from a financial institution that has issued the security
 •   It is critical that all risks associated with financial securities are managed within a well-documented
     framework in the form of policies and procedures
 •   An effective policy should address the risks related to credit exposure, legal, accessibility and
     documentation in order to mitigate against the risk of limitations being imposed on Council in the
     event of making a call on a financial security
 •   The fundamental considerations that a policy must address are the reputation and credit rating of
     the issuer and the wording of the security document
 •   An effective policy should act to ensure compliance with relevant legislation and streamline
     internal processes with related process documents
 •   The primary aim of the policy is to ensure that the accepted financial securities are irrevocable
     and payable on demand.

 Risk management considerations

 Council must ensure that the risks associated with accepting, managing, and releasing securities are
 identified and managed through adherence to stipulated requirements and processes. This will
 mitigate against the risk of limitations being imposed on Council when a call is made for the cash to
 be paid out in the event of a breach of an obligation.

 A call up of a security involves Council requesting a cash payment from the financial institution that
 has issued the financial security. The ‘Policy Guideline – Guidelines for the Acceptance, Management
 and Release of Financial Securities’ that supports the implementation of this policy, provides specific
 procedures that must be implemented to ensure that the following risks are minimised in the event of
 a call up:

 •   Credit risk is the risk that a financial institution is unable to pay when a financial security is called
     up, this may include either late or non-payment of some or all of the security.
 •   Access risk is the risk that in the event of a financial security being called up access to the funds
     may be delayed or prevented.
 •   Legal risk is the risk that the contractor/developer or financial institution may seek to hold back or
     avoid a call up of a financial security by seeking to involve the court.
 •   Financial risk is the risk that Council won’t be able to meet its commitments in the event of a
     breach of an obligation by a party.
 •   Documentation risk is the risk that the security document is not valid, and binding and it does not
     reflect adequately the underlying transaction.

 When a financial security will be required

 Council will require a security to guarantee performance in the following instances:

 • Pursuant to the adopted fees and charges schedule which specifies when a bond is required for
   certain works or activities
 • Contract works where the requirement for a financial security is stated in the requests for
   Quotation/Tender (RFQ/T) document


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Attachment 10 – Financial Securities (Bonds and Guarantees)

 • Agreed works as a condition of subdivision or other approvals where the requirement for a financial
   security is stated in the development agreement.
 Types of financial securities accepted by Council

 The only forms of security accepted by Council are:

 •   Cash bonds: a performance bond that is held in Council’s trust account
 •   Bank guarantees: an unconditional performance guarantee given by a bank.

 Council will not approve or accept the following forms of security:

 •   Letters of credit
 •   Mortgage over land
 •   Related party guarantee
 •   Insurance bonds: an unconditional performance bond given by an insurance company
 •   Cash retentions (where are percentage of the contract value is withheld from supplier invoice
     payments) except where these maybe required by legislation such as the Building
     Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020
     (BIFOLA Act).

 Determining the value of a security

 The appropriate value of a financial security required to secure an obligation, is determined in
 accordance with the specific guidelines and procedures adopted by the branch within Council that is
 responsible for managing the underlying transaction. The following methods are used to determine
 the value of a required security:

 •   Council’s adopted Fees and Charges Schedule
 •   Onsite inspections and/or assessments of works undertaken as a condition of subdivision or other
     development approvals
 •   An agreed percentage of the sum of a contract based on risk or other legislative requirements.

 Requirements for financial institutions

 The reputation and credit rating of an issuer of a financial security is one of the fundamental
 considerations of this policy to ensure that Council’s exposure to credit risk is minimised.

 The Policy Guideline, “Guidelines for the Acceptance, Management and Release of Financial
 Securities” sets out the minimum requirements for all financial institutions issuing bank guarantees.

 Documentation requirements

 The construction of the financial security document is another fundamental consideration of this policy
 to ensure that all bank guarantees are irrevocable and payable on demand.

 The Policy Guideline, ‘Guidelines for the Acceptance, Management and Release of Financial
 Securities’ stipulates specific documentation requirements that must be implemented when accepting
 bank guarantees.

 ROLES AND RESPONSIBILITIES

 A The key Council stakeholders in ensuring the effective implementation of this policy and adherence
 to the related policy guidelines are:

 • The Financial Services Branch will have primary responsibility in ensuring that the specific
   requirements stipulated in the policy and related guidelines are adhered to as well as monitoring
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Attachment 10 – Financial Securities (Bonds and Guarantees)

   and reporting Council’s exposure to risk in relation to financial securities

 • The Financial Services Manager will have responsibility for ensuring that any consideration of
   requests for exceptions to this policy and related guidelines are appropriately assessed and must
   ensure that the Financial Services Branch is appropriately monitoring and reporting Council’s risk
   exposure in relation to financial securities

 • Project managers will work closely with the Procurement Branch to determine the appropriate
   value of a financial security and be accountable for the accurate completion of the Acceptance
   checklist to minimise Council’s risk exposure. The necessary due diligence checks should be
   conducted throughout the delivery of a project (particularly where sub-contractors are engaged)
   to monitor and manage any emergent financial and credit risks to Council

 • The Planning and Development Assessment Branch will determine the appropriate value of a
   financial security and be accountable for the accurate completion of the Acceptance checklist to
   minimise Council’s risk exposure. The necessary due diligence checks should be conducted
   throughout the completion of the agreed works to monitor and manage any emergent financial
   and credit risks to Council

 • The Financial Services Branch will be responsible for the safe storage of the financial security
   documents

 • The Governance Branch will be responsible for providing general legal guidance to ensure all
   risks are minimised especially in relation to documentation risk

 • The CEO and Directors are responsible for ensuring compliance with this policy and ensuring
   accurate and reliable information is provided to Council for effective decision making.

 DEFINITIONS

            Term                                             Definition
 Financial Security         A bank guarantee or cash bond used to guarantee performance.
 Financial Institution     An Authorised Deposit Taking Institution such as a bank or a non-
                           authorised Deposit Taking Institution that Council considers an
                           acceptable risk.
 Authorised Deposit Taking A corporation that is authorised under the Banking Act 1995 and
 Institution (ADI)         regulated by the Australian Prudential Regulation Authority (APRA).
                           Incudes banks, building societies and credit unions.
 Bank Guarantee            Is a guarantee from an ADI promising to pay Council without reference
                           to the developer/contractor, an agreed amount upon the
                           developer/contractor failing to perform their obligations under the
                           contract.
 Insurance Bond            Is a performance bond from an authorised insurer promising to pay
                           Council without reference to the developer/contractor, an agreed
                           amount upon the developer/contractor failing to perform their obligation
                           under the contract.
 Cash Bond                 An amount paid by a developer/contractor to guarantee performance
                           that is held in Council’s Trust Account.
 Call up                   A call-up of a financial security is when Council requests a cash
                           payment from a financial institution who has issued a financial security
                           when a developer/contractor cannot perform part or all of their entire
                           obligation.




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Attachment 10 – Financial Securities (Bonds and Guarantees)

 RELEVANT LEGISLATION AND POLICY DOCUMENTS

 Related Council Policies and Guidelines

 The following policies and guidelines are related to the effective implementation of this policy:
 • Policy Guideline – Guidelines for the Acceptance, Management and Release of Financial
    Securities
 • Investment Policy
 • Tender Financial Capacity Assessment Policy
 • Tender Financial Capacity Assessment Policy Guidelines
 • Procurement Policy
 • Procurement and Contacting Procedures
 Related Legislation

 The following policies and guidelines are related to the effective implementation of this policy:
 • Local Government Act 2009
 • Local Government Regulation 2012
 • Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020
    (BIFOLA Act)
 • Queensland Building and Construction Commission (QBCC) Act 1991 (QLD)

 Related Documents

 The following forms are related to the effective implementation of this policy and are referred to in the
 Policy Guideline – Guidelines for the Acceptance, Management and Release of Financial Securities:
 • Acceptance Checklist
 • Release Form


HUMAN RIGHTS COMPATIBILITY STATEMENT

In developing this Policy, the subject matter has been considered in accordance with the requirements
of the Human Rights Act 2019. It is considered that the subject matter does not conflict with any human
rights, including the right to property and the right to freedom of movement, and supports a human
rights approach to decision making by Council. This policy should be read in conjunction with the
Human Rights Act 2019 and Council’s Human Rights Policy.




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Attachment 10 – Financial Securities (Bonds and Guarantees)

 Version control:

    Version         Reason/ Trigger   Change (Y/N)   Endorsed/ Reviewed by         Date

    1.0             Create new        N              Director Corporate Services   30 June 2025

    2.0             Review            N              Council                       23 June 2026




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