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What is assurance contract?

Assurance contract

This is a deal which involves a group of people or organisations pledging to contribute to a project or action. It may be enforced by a government, or a private organisation.

Where have you heard of assurance contract?

You might have heard of them under a different name - they're sometimes known as a provision point mechanism. There is also a similar device known as a dominant assurance contract.

What you need to know about assurance contract.

This type of contract involves pledging to contribute to an action if enough other people make the same pledge. So for example, a group may promise to help fund a scheme if a set funding target is reached, often by a specific date. If this target is met, then the funding is provided and the action goes ahead. If not, then the parties involved are not bound to carry out the action and any funding contributions that have already been made will be refunded.

Find out more about assurance contract.

To understand assurance contracts, it helps to have knowledge of the free rider problem. Find out more with our guide.

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