Performance Guarantee Bonds are essential financial instruments in Pakistani business transactions, particularly in construction, infrastructure, and large-scale commercial projects. These bonds are commonly required when a company (Principal) enters into a contract to perform services or supply goods, with the bank (Guarantor) providing financial security to the project owner (Beneficiary). The Performance Guarantee Bond serves as a risk management tool, ensuring that the Beneficiary can recover losses if the Principal fails to fulfill their contractual obligations. Under Pakistani law, these bonds must comply with the Contract Act 1872 and relevant banking regulations, typically ranging from 5-10% of the contract value. They remain valid throughout the contract period and often include an additional claim period after contract completion.
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1. Parties: Identifies the three key parties: (1) The Guarantor (bank/insurance company), (2) The Principal (contractor/supplier), and (3) The Beneficiary
2. Background: Describes the underlying contract or obligation being guaranteed and explains why the guarantee is being issued
3. Definitions: Defines key terms used in the guarantee bond, including 'Guaranteed Sum', 'Underlying Contract', 'Demand Notice', etc.
4. Guarantee: The core section stating the guarantor's unconditional undertaking to pay the specified sum upon demand
5. Amount of Guarantee: Specifies the maximum guaranteed amount and any provisions for reduction or adjustment
6. Duration and Validity: States the effective date and expiry date of the guarantee
7. Conditions for Invocation: Specifies the circumstances and process for making a demand under the guarantee
8. Payment Terms: Details the timing and method of payment upon receipt of a valid demand
9. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and defines jurisdiction for disputes
10. Execution: Formal execution block with signature requirements and witness provisions
1. Assignment and Transfer: Include when the guarantee needs to be transferable or assignable
2. Partial Demands: Include when multiple partial demands are permitted under the guarantee
3. Counter-Indemnity: Include when there's a separate counter-indemnity from the Principal to the Guarantor
4. Language: Include when the guarantee might be translated or used internationally
5. Notices: Include when formal notice provisions are required beyond the demand mechanism
6. Amendment Provisions: Include when the guarantee terms may need modification during its validity
1. Form of Demand: Template for making a valid demand under the guarantee
2. Underlying Contract Details: Summary or extract of the main contract being guaranteed
3. Authorization Documents: Copies of corporate authorizations and powers of attorney
4. Special Conditions: Any specific conditions or requirements particular to this guarantee
5. Bank Details: Payment account details for the beneficiary
Find the exact document you need
Contract Performance Guarantee
A Pakistani law-governed bank guarantee securing a contractor's performance obligations, providing financial assurance to project owners through an unconditional payment commitment.
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Performance Guarantee Bond
A Pakistani law-governed financial guarantee instrument where a bank ensures payment to a beneficiary if a contractor defaults on their obligations.
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