Advance Payment Guarantee
Q: We are in the construction industry and we use a contract known as an Advance Payment Guarantee and I want to know if this is acceptable please.
Basically, we pay a large percentage of a subcontractor's scope upfront. A third party acts as a guarantor that if the subcontractor fails to deliver (either works or materials) they will pay us back what we have paid upfront.
Please advise if this arrangement is acceptable
A: If the third party is paid a fee (fixed amount or monthly premiums, etc.) for standing guarantor that in the event the subcontractor does not complete the work on time, or he abandons the work before completion, then they will pay the hirer out, then this is not permissible as it is a type of insurance. Hence, since the elements of gambling and interest are found in this contract, it will be ruled as haraam.
And Allah Ta'ala (الله تعالى) knows best.
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