The Performance Guarantee Agreement is a crucial security instrument in UAE business transactions, particularly in construction, infrastructure, and major commercial projects. It provides financial security to the beneficiary (typically a project owner or employer) against the risk of non-performance or default by the principal (usually a contractor or service provider). The agreement, governed by UAE law, must comply with local banking regulations and commercial practices. The guarantee typically covers a percentage of the contract value and remains valid until the successful completion of the underlying obligations. Performance Guarantee Agreements are essential in UAE government contracts and are often required for private sector projects exceeding certain value thresholds. The document specifies trigger events for calling the guarantee, demand procedures, and payment obligations, while ensuring compliance with UAE Civil Code provisions regarding guarantees and sureties.
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1. Parties: Identification of the Guarantor (typically a bank or financial institution), the Principal (party whose performance is being guaranteed), and the Beneficiary
2. Background: Context of the underlying transaction or project requiring the guarantee, and the relationship between the parties
3. Definitions: Key terms used throughout the agreement, including 'Guaranteed Obligations', 'Guarantee Amount', and 'Expiry Date'
4. Guarantee: Core guarantee provisions, amount, and scope of the guaranteed obligations
5. Duration: Term of the guarantee, including commencement date, expiry date, and any extension provisions
6. Demand Requirements: Procedures and conditions for making a demand under the guarantee
7. Payment Obligations: Terms of payment, including timeline and method upon receipt of a valid demand
8. Representations and Warranties: Standard declarations by the Guarantor regarding capacity and authority to issue the guarantee
9. Governing Law and Jurisdiction: Specification of UAE law as governing law and jurisdiction of UAE courts
1. Counter-Indemnity: Required when the Principal provides indemnity to the Guarantor for any payments made under the guarantee
2. Assignment: Include when transfer rights need to be addressed, particularly relevant for project financing
3. Multiple Guarantors: Required when more than one guarantor is providing the guarantee, addressing joint and several liability
4. Reduction Provisions: Include when the guarantee amount may be reduced progressively based on project milestones
5. Language: Required when dual-language provisions are needed, specifying which version prevails
6. Shariah Compliance: Include when the guarantee needs to be Shariah-compliant, with relevant provisions and structure
1. Form of Demand: Template for making a valid demand under the guarantee
2. Underlying Contract: Copy or key terms of the contract being guaranteed
3. Payment Details: Banking and account information for payments under the guarantee
4. Corporate Authorizations: Copies of relevant corporate approvals and powers of attorney
5. Performance Standards: Detailed criteria for assessing performance under the guarantee, if applicable
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