Irrevocable standby letter of credit

An irrevocable standby letter of credit is a commitment by a bank on behalf of a client to pay a beneficiary if the client fails to meet contractual obligations. It is commonly used in international trade to provide assurance of payment or performance. The “irrevocable” nature means that once issued, it cannot be canceled or modified without agreement from all parties involved.

• the Irrevocable Standby Letter of Credit will be identified in any tender documents in which a security bid in the form of a certified cheque is presently accepted
• the first page of the document and the required signatures on the bottom of the second page need to be completed by the contractor for tendering purposes, information on the second page would be entered if the department was cashing in the letter of credit
• the dollar amount of the letter of credit will equal that of a certified cheque
• the letter of credit must be completed on Form I and issued or endorsed by a financial institution as set out in the regulation
• the completed letter of credit will be submitted with the bidder’s tender package, as is the case with a certified cheque
• the letter of credit requires two signatures: that of the financial institution official (along with the financial institution’s stamp) and that of the customer (contractor)
• the letter of credit must be an original document completed correctly in the required amount to be accepted as a security deposit
• if the contractor is awarded the contract, the original letter of credit will be kept in safekeeping by the Department of Transportation and will be returned to the contractor upon completion of the work
• if the contractor is not the successful tenderer, the letter of credit will be returned to the contractor prior to or at the time of award

Once the contract is successfully completed, the original letter is returned to the contractor. If the contractor defaults on the contract, the department can take the letter of credit to the financial institution, which will issue a cheque to cover the owed amount. Partial payments up to the full letter of credit amount are allowed.

Please be advised that some financial institutions may require a minimum of five days to provide customers with a letter of credit.