UAE Bonds: Calling On A Bond Or Performance Guarantee In The UAE

An increase in the demands made or rather the "calls" made for payment of bonds and guarantees can sometimes be a reflection of the economic situation within the construction industry. A tightening of expenditure or perhaps problems with resourcing can lead to a delayed or distressed project and ultimately a position where a call is made on the bonds or guarantees of the contractor or others in the supply chain. There are some important factors to consider when deciding whether to call on these security documents.

The first is to identify whether the security document is an on-demand bond, or a performance guarantee. The construction industry uses terms interchangeably, as does the banking world. It is not possible to rely upon the label on the document, and so a review of the terms of the security document is required. A classic on-demand bond is as good as cash. It is unconditional in that the beneficiary can make a written demand for payment with very few or any