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X4

Parent company guarantee

Reviewed by LazyQS Editorial·Last reviewed: 2026-02-19

Plain English Explanation

X4 requires the Contractor to provide a parent company guarantee (PCG) from its parent or holding company. A PCG is an undertaking by the parent company to meet the Contractor's obligations if the Contractor fails to perform them — effectively a guarantee backed by a financially stronger entity.

PCGs are commonly required on higher-value or higher-risk projects as additional security for the Client. Unlike a performance bond (X13), a PCG typically provides unlimited cover (up to the contract sum) and is based on the parent's covenant strength rather than a capped insurance product.

For subcontractors, a PCG may also be required — check your subcontract carefully.

Key Takeaway

A PCG is unlimited in theory but only as good as the parent's financial covenant — check the parent's balance sheet, not just its name, before relying on it as meaningful security.

What This Means for Subcontractors

If a PCG is required from you as a subcontractor, you need to have a parent company with sufficient financial strength and willingness to provide the guarantee. Independent companies or SPVs without a suitable parent may not be able to provide a PCG, which can affect their ability to tender. Factor the cost and implications of arranging a PCG into your bid.

Common Risks & Disputes

  • 1Parent company not being willing to provide a PCG for the full contract sum
  • 2PCG being required but the contractor having no suitable parent (e.g. is itself a holding company)
  • 3The PCG form being heavily negotiated and delaying contract execution
  • 4Parent company financial strength changing during the project, reducing the value of the PCG
  • 5Activation of the PCG being complex in practice — PCG claims can take time to enforce

Sources

  1. NEC4 ECC Secondary Option X4— NEC4 ECC
  2. RICS Guidance Note: Security Obligations in NEC Contracts — PCGs and Bonds— RICS
  3. Fenwick Elliott: Parent Company Guarantees in Construction Contracts— Fenwick Elliott

Related Clauses

X13

Performance bond

Performance bond — the capped alternative to a parent company guarantee

Continue Learning

Category Overview

Back to X Clauses (Secondary Options)

Adjacent Clauses

X3 Multiple currenciesX5 Sectional completion

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