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A Performance guarantee is a financial commitment where a bank or insurance company promises to compensate a beneficiary if another party fails to fulfill their contractual obligations. In UAE business practices, these guarantees play a vital role in construction projects, government contracts, and major commercial deals.

Under UAE Civil Code regulations, performance guarantees provide security to project owners by ensuring contractors or suppliers complete their work as agreed. The guarantee typically covers 10% of the contract value and remains valid until the project's completion or handover. Banks in Dubai and Abu Dhabi commonly issue these instruments as unconditional, on-demand guarantees, meaning they must pay immediately when the beneficiary makes a valid claim.

Performance guarantees become essential when undertaking major construction projects, government tenders, or commercial contracts in the UAE. Banks typically require these guarantees before financing large developments, especially for projects valued over AED 1 million or when working with new business partners.

They're particularly valuable for project owners dealing with international contractors, or when local regulations mandate performance security. Common trigger points include signing construction agreements in Dubai's free zones, bidding on Abu Dhabi government contracts, or entering long-term supply agreements. Getting a performance guarantee early helps secure better contract terms and demonstrates financial credibility to stakeholders.

• Performance Guarantee Bond: A bank-issued guarantee typically used in construction projects, offering immediate payment upon demand without proof of default
• Contract Performance Guarantee: A more detailed guarantee specifically tailored for complex commercial contracts, often including milestone-based release conditions
• Performance Guarantee Agreement: A comprehensive three-party agreement used in UAE free zones, outlining specific performance metrics and dispute resolution procedures

• Project Owners/Beneficiaries: Government entities, developers, or companies who receive the performance guarantee as security for contract completion
• Banks/Financial Institutions: Issue the guarantee and commit to paying the guaranteed amount upon valid demand
• Contractors/Service Providers: Apply for and provide performance guarantees to secure their contractual obligations in UAE projects
• Legal Counsel: Draft and review guarantee terms, ensuring compliance with UAE Central Bank regulations and local laws
• Corporate Officers: Authorize and sign performance guarantees on behalf of their organizations

• Contract Details: Gather the main contract value, project timeline, and specific performance obligations being guaranteed
• Party Information: Collect full legal names, trade licenses, and authorized signatories of all involved parties
• Guarantee Amount: Calculate the required guarantee value (typically 10% of contract value in UAE)
• Duration Terms: Define the guarantee's validity period, including any auto-renewal conditions
• Claim Conditions: Specify clear trigger events and claim procedures under UAE banking regulations
• Document Generation: Use our platform to create a legally-compliant performance guarantee template, customized to your specific requirements

• Parties' Details: Full legal names, addresses, and registration numbers of guarantor, beneficiary, and principal
• Guarantee Amount: Specific sum in AED, both in figures and words, as per UAE Central Bank guidelines
• Scope of Coverage: Clear description of guaranteed obligations and underlying contract reference
• Validity Period: Explicit start and end dates, including any extension conditions
• Demand Mechanism: Precise procedure for making claims under UAE law
• Governing Law: Clear statement designating UAE law and relevant emirate's jurisdiction
• Authentication: Notarization requirements and authorized signatory details

A Performance guarantee is often confused with a Guarantee Agreement in UAE business transactions. While both involve financial commitments, they serve distinct purposes and operate under different legal frameworks.

• Scope and Purpose: Performance guarantees specifically secure the completion of contracted work or services, while Guarantee Agreements cover broader financial obligations, including loans and debts
• Payment Trigger: Performance guarantees become payable upon failure to complete specific contractual obligations, whereas Guarantee Agreements activate when the primary debtor defaults on any payment
• Duration: Performance guarantees typically last until project completion or handover, while Guarantee Agreements often extend throughout the entire loan or debt period
• Banking Requirements: UAE banks require specific collateral and documentation for Performance guarantees, following Central Bank guidelines, while Guarantee Agreements often need less stringent security arrangements