Ask for one of two protections after delivery. A retention means you hold back part of the price until the machine passes acceptance at your site. A performance bank guarantee means the supplier's bank promises to pay you if the machine does not perform as agreed.
Either works only if the contract states what performance means and how it will be tested.
Retention
Retention costs nothing to set up and needs no bank. Its weakness is that suppliers price it in, and a small supplier may resist it because it ties up working capital. Retention is simple and in your control. You pay the bulk of the price on milestones and keep a final share until site acceptance, or until the end of a defined period. The size of the share is negotiated and usually reflects the machine's complexity and the installation risk.
Suppliers dislike open-ended retentions, so set a clear release trigger. Typical triggers are a signed site acceptance test, a run of agreed duration at target output, or a fixed number of months after delivery if acceptance is delayed for reasons on your side.
Performance bank guarantee
A performance bank guarantee lets the supplier receive full payment while you keep security. Indian banks issue them routinely for exporters. Ask for these points:
- The guarantee should be on demand, so payment does not depend on proving the supplier's breach in court first.
- It should be issued or confirmed by a bank acceptable to you, and ideally follow the ICC Uniform Rules for Demand Guarantees, URDG 758.
- The amount and expiry date should cover the acceptance period and, where agreed, the warranty period.
- The claim process should be stated, including the documents you must present to call it.
Define the performance
Vague wording makes any guarantee weak. Set measurable criteria, such as output per hour on your material, accuracy on a test piece, availability over a test run or energy use at a stated load. Name the test method and who signs the result.
Site acceptance builds on the factory trial. Our guide to FAT and SAT explains how the two fit together. Delivery delays are a separate matter, covered in penalty clauses for delays.
Agree in advance what happens if the machine misses a target by a small margin. Options include a set period for the supplier to fix it, a reduction in price, or rejection if it misses by more. Writing this down avoids an all-or-nothing argument at site.
Bank charges, local law and enforceability vary by country. Ask your bank and a lawyer in your jurisdiction to review the wording before you sign.
Next step
We help you set acceptance criteria with the supplier and witness the factory trial against them. To plan your contract terms, book a free sourcing review.