Bank or performance guarantees are critical in the risk
allocation between parties to construction contracts. The precise
wording of the requirement for such a guarantee and form it should
take are, however, often overlooked in negotiations. Given the
number of guarantees typically required, contractors and principals
should pay close attention to the basis of each guarantee and that
their intention is accurately recorded in the contract. Failure to
do so can be disastrous as the new Chief Justice of the High Court,
Justice French, points out in the decision of Clough
Engineering Ltd v Oil and Natural Gas Corporation Ltd [2008]
FCAFC 136.
Background
Clough Engineering Ltd (Clough) entered into a lump sum contract
in the amount of US$215 million with Oil and Natural Gas
Corporation Ltd (ONGC) for the development of oil and gas fields
off the coast of Andhra Pradesh in India.
