Performance Bonds and ICC Pre-arbitral Referee Procedure in Construction Contracts

Overseas construction and engineering contractors are often subject to abuse from the employer (i.e., the owner), especially if it is a public agency in a third world country, as regards the unfair calls on the unconditional first demand letters of credit known as performance bonds, the issuance of which is often requested from the contractor as a pre-condition in order to get the job.

Various questions have been raised on many occasions in the Italian Courts with regard to the position of performance bonds in our legal system and to the rules relating to such guarantees, in particular with regards to as concerns the limits within which their effectiveness can be suspended by means of provisional remedies granted by Courts to the contractor. Without going into too much detail, we should like to point out that an interesting and authoritative model clause has recently been drafted and publicised by the International Bar Association, Section on Business Law, Committee T. The