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A Performance guarantee is a binding commitment where a bank or financial institution promises to compensate a beneficiary if another party fails to fulfill their contractual obligations. In Saudi banking practice, these guarantees commonly protect government entities and large companies when they award contracts for construction, supply, or service projects.

Under Saudi Arabian Monetary Authority (SAMA) guidelines, these guarantees typically range from 5% to 10% of the contract value and remain valid throughout the project duration. They serve as a vital risk management tool, giving project owners confidence that contractors will complete work according to specifications, while helping qualified businesses compete for major contracts without tying up large amounts of capital.

Use a Performance guarantee when undertaking major projects or contracts in Saudi Arabia, especially for government tenders, construction work, or large-scale supply agreements. This becomes essential when bidding on public sector projects where the Ministry of Finance requires performance bonds, or when working with major private developers who need assurance of project completion.

For private sector contracts above SAR 1 million, a Performance guarantee helps secure business relationships and demonstrates financial capability. It's particularly valuable when entering new market segments, working with first-time clients, or managing complex projects with staged deliverables where proof of financial backing strengthens your competitive position.

• Performance Guarantee Bond: Basic form used for construction projects, typically covering 10% of contract value throughout project duration
• Contract Performance Guarantee: Comprehensive version with detailed performance metrics, commonly used in service contracts and technology implementations
• Payment And Performance Guarantee: Dual-purpose guarantee covering both payment obligations and performance requirements, popular in large-scale development projects and government contracts

• Banks and Financial Institutions: Issue Performance guarantees and manage the financial obligations, typically following SAMA regulations
• Government Entities: Request guarantees as beneficiaries for public tenders, infrastructure projects, and major procurements
• Contractors and Service Providers: Obtain guarantees to secure contracts and demonstrate financial capability for project execution
• Legal Departments: Review and negotiate guarantee terms, ensuring compliance with Saudi commercial law
• Project Owners: Private sector companies who require guarantees as security for large-scale developments or significant contracts

• Contract Details: Gather complete project specifications, timeline, and contract value to determine guarantee amount
• Party Information: Collect legal names, commercial registration numbers, and authorized signatories for all involved parties
• Bank Requirements: Prepare financial statements and collateral documentation required by the issuing bank
• Project Timeline: Define clear start and end dates, including any milestone deadlines that affect guarantee validity
• Compliance Check: Verify alignment with SAMA regulations and any sector-specific requirements
• Document Generation: Use our platform to create a legally-sound Performance guarantee that meets Saudi Arabian standards

• Parties' Details: Full legal names, addresses, and registration numbers of guarantor, beneficiary, and principal
• Guarantee Amount: Clearly stated value in Saudi Riyals, both in numbers and words
• Scope Definition: Specific obligations covered and underlying contract reference details
• Validity Period: Explicit start and end dates, including any automatic extension conditions
• Demand Mechanics: Clear procedures for claim submission and payment terms under Sharia principles
• Governing Law: Statement confirming Saudi law application and SAMA regulations compliance
• Authentication: Official bank seal and authorized signatures as per Saudi banking requirements

A Performance guarantee differs significantly from a Bank Guarantee in several key aspects, though both are commonly used in Saudi Arabian business transactions. While a Performance guarantee specifically covers the completion of contractual obligations, a Bank guarantee has broader applications and can secure various financial commitments.

• Scope and Purpose: Performance guarantees exclusively cover project completion and quality standards, while Bank guarantees can secure loans, payments, or other financial obligations
• Trigger Events: Performance guarantees activate upon failure to meet contract specifications, whereas Bank guarantees respond to various financial defaults
• Duration: Performance guarantees typically align with project timelines, while Bank guarantees often have more flexible terms based on financial arrangements
• Value Calculation: Performance guarantees usually represent 5-10% of contract value, but Bank guarantees can vary widely based on the underlying financial obligation