Procurement glossary · Contract and delivery
Parent company guarantee
An undertaking by a parent company to stand behind the obligations of its subsidiary under a contract. Authorities ask for one where the bidding entity alone does not satisfy the financial test, or where contract value is high relative to the bidder's balance sheet.
Also called PCG.
What it means in practice
A parent company guarantee transfers the financial risk assessment from the bidding entity to the group. For a supplier whose trading company is thinly capitalised but whose group is not, it is often the difference between eligibility and disqualification.
It is a real legal commitment and the parent's board has to agree to it. The common failure is a bid team assuming it will be available and discovering, days before submission, that the group finance director will not sign, or will not sign in the form the authority requires.
Ask early and ask with the authority's actual wording in hand. Authorities frequently prescribe the form of guarantee in the tender documents, and a parent willing to give its own standard wording may not be willing to give theirs.
Where suppliers get caught
Assuming group support is automatic because the group is large. The parent has its own exposure, its own covenants and its own view. Get the decision in writing at bid or no bid, not at submission.
Common questions
When will a buyer ask for a parent company guarantee?
Where the bidding entity does not meet the financial standing test on its own, or where the contract is large relative to the bidder's balance sheet. It is common on construction and long service contracts.
Is a parent company guarantee the same as a performance bond?
No. A guarantee is an undertaking by a related company to meet the obligations. A performance bond is an instrument from a bank or surety that pays out on default. Some contracts require both.
Related terms
If a tender in front of you turns on this, send us the documents and the deadline and we will tell you honestly whether it is worth bidding. Call 020 3668 5488, or read the rest of the UK procurement glossary.