The document summarizes the key types of demand guarantees used in construction and engineering projects, including tender guarantees, performance guarantees, advance payment guarantees, retention money guarantees, warranty guarantees, and others. It provides an overview of the history and development of the Uniform Rules for Demand Guarantees (URDG), which aim to establish uniform rules for cross-border guarantees. The URDG 758 are the most recent version and establish standards for demand guarantees to make the process more efficient and reduce rejection risks for beneficiaries.

1. CONSTRUCTION AND
ENGINEERING
SEMINAR
DEON GRIESSEL

2. TYPES OF DEMAND GUARANTEES
> Tender guarantees/ bid bonds
> to cover the risk of a tenderer withdrawing its bid
> Performance guarantees
> to cover the risk of delivery by a contractor/supplier of non-conforming
works/goods/services
> Advance payment guarantees
> to cover the risk of a contractor/supplier being unable to repay an
advance payment for works/goods/services
2

3. TYPES OF GUARANTEES
> Retention money guarantees
> replace retention amouns but fulfill the same function
> Warranty guarantees
> cover the obligation of a supplier/contractor to maintain
equipment/goods/works which it delivered, for a certain period
> Customs guarantees
> issued in favour of customs authority to cover liability for duties in
certain circumstances
3

4. TYPES OF GUARANTEES
> Payment guarantees
> to cover payment obligations eg the price of goods/services
furnished
> Credit enhancement guarantees
> issued by a better-rated financial institution to cover a guarantee
by a lesser-rated institution
> Parent company guarantees
> cover the performance or payment obligations of the guarantor's
subsidiaries or affiliates
4

5. TYPES OF GUARANTEES
> Reinsurance guarantees
> issued by several re-insurers in favour of an insurer - used to
spread the risk
> Sub-contract guarantees
> secure the payment by a main contractor of sums due by it to
subcontractors
5

6. > No uniform rules for cross-border guarantees before
and during the 1970s: No internationally accepted
standard terms of demand guarantees
> URCG (Uniform Rules for Contract Guarantees) were
drafted between 1968 and 1978, but regrettably failed
and were not accepted by the market
> URDG 458 drafted between 1981 and 1991, whereafter
they were adopted by the International Chamber of
Commerce (ICC) and entered into force in 1992.
(These are still referenced in all model guarantees
which accompany the 1999 FIDIC suite of contracts.)
6
HISTORY OF UNIFORM RULES

7. > URDG 758 (drafted between 2007 and 2009) were
adopted by the ICC and came into force in 2010
> The URDG have proved to be very popular and widely
accepted. Comments from 52 countries were taken
into account
7
HISTORY OF UNIFORM RULES

8. WHAT ARE THE URDG?
> Neither a law nor an international treaty
> They generally apply:
> where expressly incorporated into the guarantee/counter
guarantee
> as trade usage (in certain circumstances)
> It is a set of contractual rules
> They only apply to independent demand guarantees or
counter guarantees
> May be excluded
8

9. HIGH LEVEL OVERVIEW
OF THE URDG 758
9

10. ROLE PLAYERS
> Applicant: the party indicated in the guarantee as having the
obligation (under the underlying relationship) secured by the
guarantee
> Instructing Party: the party which gives instructions for the
issue of the guarantee and is responsible for indemnifying
the guarator if the guarantor must pay out on the guarantee
(usually the applicant)
> Beneficiary: the party in whose favour the guarantee is
issued
> Guarantor: the party issuing the guarantee
> Counter guarantor: the issuer of a counter guarantee,
usually in favour of a guarantor
10

11. A TRULY INDEPENDENT
UNDERTAKING
> distinguishes it from a suretyship, which is accessory (not
independent)
> the beneficiary only needs to present a complying demand:
> regardless of whether breach has actually occurred or not
> regardless of the amount of the resulting loss
> parties must use the URDG model guarantee/counter
guarantee wording
> parties must incorporate the URDG by reference
11

12. “EFFECTIVE WHEN ISSUED”
> Sometimes there are disputes about when (for example) an
advance payment guarantee becomes effective: must the
advance payment be made first or not?
> If the URDG apply, this doubt is removed: the guarantee is
available for the presentation of a demand from the time the
guarantee is issued
12

13. IRREVOCABLE UNDERTAKING
> Protects the beneficiary against the guarantee being revoked
by the guarantor whilst the applicant’s obligation is still to be
completed
> Nevertheless subject to an expiry date/event
> If the URDG apply, the guarantee is irrevocable even if that
is not stated
13

14. NO VARIATION OF AMOUNT ABSENT
AGREEMENT
> The amount of the guarantee can only be reduced:
> in accordance with the wording of the guarantee itself; or
> as a result of prior partial payments on a complying partial
demand
> Progress of performance under the underlying contract is
irrelevant
14

15. TIME AND CONTENT OF NOTICE OF
REJECTION – PRECLUSION
> Guarantors must decide by no later than close of business on
the 5th business day after presentation whether they regard
the demand as being non-complying and must give reasons
if they reject the demand
> If the guarantor does not do so, the guarantor is precluded
from subsequently claiming that the demand is non-complying
15

16. STATEMENT, NOT PROOF, OF BREACH
> The beneficiary is only expected to indicate, in a statement
supporting its demand, in what respect the applicant is in
breach of the underlying contract
> The beneficiary is not required to prove the breach or to
justify its right to claim payment
16

17. "EXTEND OR PAY" MEANS PAY UNLESS
EXTENSION GRANTED
> The beneficiary can make an "extend or pay" demand that
complies with the wording of the guarantee
> If this is done, such a demand is automatically regarded as a
payment demand if no extension is granted
> This prevents the guarantor from declining the extension
after the guarantee has expired
17

18. AMENDMENTS TO BE AGREED
> An amendment to the guarantee made without the
beneficiary’s consent is not binding on the beneficiary
> Unilateral variations are not competent
18

19. INCOMPLETE PRESENTATIONS
POSSIBLE
> A beneficiary can choose to make a presentation (including a
demand) in a piecemeal manner, provided that it indicates
that it will be completed later (it must be completed before
the guarantee expires)
> The guarantor need not commence examination before the
presentation is complete
> The beneficiary is protected against rejection risk in the
interim
19

20. ELECTRONIC PRESENTATION
> It could happen that a guarantee requires electronic
presentation but omits to specify the format, the system for
data delivery or the electronic address for presentation
> In such a case the beneficiary has a choice between making
an electronic presentation that can be authenticated, or
making presentation in paper form
20

21. MODE OF DELIVERY OF PAPER
PRESENTATION
> Some guarantees require paper presentation through a
particular mode of delivery but do not exclude other modes
> In such a case the beneficiary can use another mode of
delivery if presentation is received at the place for
presentation before expiry of the guarantee
21

22. MULTIPLE DEMANDS ALLOWED
> The beneficiary is allowed to make multiple demands (unless
this is prohibited by the guarantee wording itself) provided
the aggregate of all the demands does not exceed the
amount available under the guarantee
> This puts an end to debates about whether a demand made
for a lesser amount, precludes the beneficiary from making
other demands later
22

23. SEPARATE DEMANDS
> If the guarantee states that only one demand may be made
and the beneficiary then makes a demand that is rejected for
non-compliance, another demand can be made before expiry
of the guarantee
23

24. > In order to curb the rate of rejection of demands on grounds
of non-conformity, the URDG adopt a functional standard for
the examination of documents
> Presented documents have to be consistent with one-another
and must be compliant with the guarantee
> Data need not be identical in all documents or identical to
the data in the guarantee
24
FUNCTIONAL STANDARD FOR
EXAMINATION OF DOCUMENTS

25. CHANGE OF CURRENCY
> Historically, some guarantors sought to hide behind the
defence of impossibility to perform in circumstances where
payment could not be made in the currency of the guarantee
because of an impediment beyond the control of the
guarantor
> The URDG direct the guarantor to make payment in the
currency of the place of payment, even if the guarantee
states the contrary
25

26. TERMINATION UPON RELEASE
> In order to deal with clerical errors and the like, the URDG
provide that (besides an expiry event occurring or an expiry
date arriving) a guarantee also terminates upon presentation
to the guarantor of the beneficiary’s signed release
26

27. FORCE MAJEURE
> It can happen that presentation, examination or payment is
prevented by force majeure, and in the mean time the
guarantee expires
> The URDG 758 now provide that in such a case both the
guarantee (and the counter guarantee if applicable) are
extended for a limited duration and all rights already
crystalized are suspended until cessation of the force
majeure
27

28. CHARGES
> The URDG direct guarantors not to stipulate that the
guarantee is conditional upon the receipt by the guarantor of
its charges
> This rule is designed so as to prevent guarantors trapping
unwary beneficiaries and to assure beneficiaries of the
reliability of the guarantors’ commitment
28

29. TRANSFER
> In principle, beneficiaries are able to transfer guarantees, in
other words the beneficiary’s right under the guarantee is
valuable and mobile personal property which can be
transferred, appropriated and collateralised under certain
conditions: the requirements of article 33 of the rules must
however be complied with (there are 7 rules and 4 sub-rules
in this regard)
29

30. NON-DOCUMENTARY CONDITIONS
> URDG 758 provides that a guarantee should not contain a
condition (other than a date or a lapse of a period) the
fulfilment of which cannot be determined from the
guarantor’s own records or from an index specified in the
guarantee, without specifying a document to indicate
compliance with that condition (article 7)
30

31. [Guarantor Letterhead or SWIFT identifier Code]
To: [Insert name and contact information of Beneficiary]
Date: [Insert date of issue]
Type of Guarantee: [Specify tender guarantee, advance
payment guarantee, performance guarantee, payment
guarantee, retention money guarantee, warranty guarantee,
etc.]
Guarantee no.: [Insert guarantee reference number]
31
FORM OF DEMAND GUARANTEE UNDER
URDG 758

32. FORM OF DEMAND GUARANTEE UNDER
URDG 758
The Guarantor: [Insert name and address of place of issue,
unless indicated in the letterhead]
The Applicant: [Insert name and address]
The Beneficiary: [Insert name and address]
The Underlying Relationship: The Applicant's obligation in
respect of [Insert reference number or other information
identifying the contract, tender conditions or other relationship
between the applicant and the beneficiary on which the
guarantee is based]
32

33. FORM OF DEMAND GUARANTEE UNDER
URDG 758
Guarantee Amount and currency: [Insert in figures and
words the maximum amount payable under the guarantee and
the currency in which it is payable]
Any document required in support of the demand for
payment, apart from the supporting statement that is
explicitly required in the text below: [Insert any additional
documents required in support of the demand for payment. If
the guarantee requires no documents other than the demand
and the supporting statement, keep this space empty or
indicate "none"]
Language of any required documents: [Insert the
language of any required document. Documents to be issued
by the applicant or the beneficiary shall be in the language of
the guarantee unless otherwise indicated herein]
33

34. FORM OF DEMAND GUARANTEE UNDER
URDG 758
Form of presentation: [Insert paper or electronic form. If
paper, indicate mode of delivery. If electronic, indicate the
format, the system for data delivery and the electronic address
for presentation]
Place for presentation: [Guarantor to insert address of
branch where a paper presentation is to be made or, in the
case of an electronic presentation, an electronic address such
as the Guarantor's SWIFT address. If no Place for presentation
is indicated in this field, the Guarantor's place of issue indicated
above shall be the Place for presentation]
Expiry: [Insert expiry date or describe expiry event]
34

35. FORM OF DEMAND GUARANTEE UNDER
URDG 758
The party liable for the payment of any charges: [Insert
the name of the party]
As Guarantor, we hereby irrevocably undertake to pay the
Beneficiary any amount up to the Guarantee Amount upon
presentation of the Beneficiary's complying demand, in the
form of presentation indicated above, supported by such other
documents as may be listed above and in any event by the
Beneficiary's statement, whether in the demand itself or in a
separate signed document accompanying or identifying the
demand, indicating in what respect the Applicant is in breach of
its obligations under the Underlying Relationship
35

36. FORM OF DEMAND GUARANTEE UNDER
URDG 758
Any demand under this Guarantee must be received by us on
or before Expiry at the Place for presentation indicated above.
This Guarantee is subject to the Uniform Rules for
Demand Guarantees (URDG) 2010 revision, ICC
Publication No. 758.
Signature(s)
36

37. THANK
YOU
30 September 2014
Legal notice: Nothing in this presentation should be construed as
formal legal advice from any lawyer or this firm. Readers are
advised to consult professional legal advisors for guidance on
legislation which may affect their businesses.
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