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Performance Guarantee Bond

Performance Guarantee Bond Template for Malaysia

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Key Requirements PROMPT example:

Performance Guarantee Bond

"I need a Performance Guarantee Bond for a construction project in Kuala Lumpur, where ABC Bank will guarantee MYR 5 million to the project owner, with the guaranteed sum reducing by 25% upon completion of each project phase starting March 2025."

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Document background
The Performance Guarantee Bond is a crucial financial security instrument commonly used in Malaysian business transactions, particularly in construction, infrastructure, and large-scale commercial projects. It provides financial protection to the beneficiary by ensuring that a bank or insurance company will pay a specified sum if the principal fails to perform their contractual obligations. This document is essential when there's a need for performance security in major contracts, typically ranging from 5% to 10% of the contract value. The bond must comply with Malaysian law, including the Contracts Act 1950 and Financial Services Act 2013, and requires proper stamping under the Stamp Act 1949. It can be called upon through a written demand when specified default events occur, making it an effective tool for risk management in commercial transactions.
Suggested Sections

1. Parties: Identifies the three key parties: (1) the Guarantor (bank/insurance company), (2) the Principal (party whose performance is guaranteed), and (3) the Beneficiary

2. Background: References the underlying contract or agreement that this bond guarantees and explains the context for the guarantee

3. Definitions: Defines key terms used throughout the bond, including 'Guaranteed Sum', 'Guaranteed Obligations', and 'Expiry Date'

4. Guarantee and Indemnity: Core section stating the guarantee commitment, including the guaranteed sum and conditions

5. Demand Requirements: Specifies the process and requirements for making a valid demand under the guarantee

6. Payment Terms: Details the timing and method of payment upon receipt of a valid demand

7. Duration and Expiry: Specifies the effective period of the bond and conditions for expiry

8. Governing Law and Jurisdiction: Confirms Malaysian law as governing law and specifies jurisdiction for disputes

9. Execution: Formal execution block for signing by authorized representatives

Optional Sections

1. Step-in Rights: Optional section giving the Guarantor rights to take over the Principal's obligations - typically used in large construction or infrastructure projects

2. Assignment: Include when the bond needs to be transferable or when assignment needs to be specifically prohibited

3. Counter-Indemnity: Include when the Principal needs to indemnify the Guarantor for any payments made under the bond

4. Reduction Clause: Include when the guaranteed sum should reduce progressively based on project milestones

5. Islamic Finance Compliance: Include when the bond needs to be Shariah-compliant

6. Multiple Beneficiaries: Include when there are multiple beneficiaries to specify how they can make demands

7. Force Majeure: Include when specific force majeure events should affect the guarantee obligations

Suggested Schedules

1. Schedule 1 - Form of Demand: Template for making a valid demand under the guarantee

2. Schedule 2 - Underlying Contract Details: Key details of the contract being guaranteed, including contract date, reference number, and key obligations

3. Schedule 3 - Authorized Signatories: List of persons authorized to make demands under the bond

4. Schedule 4 - Payment Details: Bank account and payment details for processing demands

5. Appendix A - Project Milestones: If using a reduction clause, details of project milestones and corresponding reduction amounts

Authors

Alex Denne

Head of Growth (Open Source Law) @ ¶¶Òõ¶ÌÊÓƵ | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

alex.den.21@genieai.co
Relevant legal definitions




















Clauses




















Relevant Industries

Construction

Infrastructure Development

Real Estate

Manufacturing

Energy and Utilities

Oil and Gas

Telecommunications

Government and Public Sector

Banking and Financial Services

Engineering Services

Relevant Teams

Legal

Finance

Treasury

Risk Management

Compliance

Commercial Operations

Project Management

Procurement

Corporate Secretariat

Business Development

Relevant Roles

Project Manager

Contract Manager

Legal Counsel

Chief Financial Officer

Risk Manager

Treasury Manager

Commercial Director

Construction Manager

Procurement Manager

Company Secretary

Finance Director

Compliance Officer

Project Director

Business Development Manager

Industries





Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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