Due to the significant level of risk inherent in the construction industry, many project owners ensure that they only work with contractors and subcontractors who are both licenced and bonded. This is an effective way to transfer risk and protect project owners from suffering a financial loss caused by projects taking longer than anticipated or a range of unforeseen factors.

1. ROB TOLLEY
LONDON
CEO and Co-Founder of Global Specialty Underwriters

2. Surety Bonds and Their Role in
the Middle East Construction
Industry
Due to the significant level of risk inherent in the construction industry, many
project owners ensure that they only work with contractors and subcontractors
who are both licenced and bonded. This is an effective way to transfer risk and
protect project owners from suffering a financial loss caused by projects taking
longer than anticipated or a range of unforeseen factors.
Surety Bonds and UAE Commercial Law
Experts in the surety field – such as Rob Tolley, who was instrumental in launching
surety bonds in the Middle East in the early 2000s – know that under UAE
commercial law, performance bonds may be unconditional or conditional.
However, in most cases performance bonds issued by contractors are ultimately
payable without conditions, which is also known as ‘on demand.’ This means that
the bank can’t refuse to liquidate the performance bond in the event that, for
example, there is a dispute between the project owner and the contractor.
A performance bond protects the project owner from financial loss in the event
that the contractor fails to fulfil the contract as per its terms and conditions. This
type of bond is distinct from a payment bond, which guarantees that the
contractor will pay the labourers, subcontractors and material suppliers
associated with the project.

3. Surety Bonds and Their Role in
the Middle East Construction
Industry
Performance Bond: Remedy for Contractors
If a contractor believes that the project manager wishes to liquidate the
performance bond on fraudulent or unjustifiable grounds, the former has recourse
to the summary court, to seek an order to stop this intended liquidation. Within the
Dubai Court of Cassation, it’s an established principle that despite the fact an
issuing bank is obliged to liquidate the letter of guarantee on the beneficiary’s
initial demand without being required to obtain the client’s permission, the law
allows the client to have recourse to the court. This can be undertaken in a bid to
have an attachment order placed on the guarantee amount if the client has
specific or serious reasons for doing so.
These grounds could include if significant pending payments were still due to the
contractor when the project was completed and handed over or if there was
evidence that the project owner had no right to begin the liquidation process.
If a performance bond is liquidated, the remedy available to the contractor
involves filing a case to seek repayment of the amount of money attached to the
performance bond, along with an amount for damages or interest, as applicable.