A Payment and Performance Guarantee is commonly used in commercial transactions where both financial and operational assurances are required. This document, governed by U.S. federal and state laws, combines elements of traditional payment guarantees with performance obligations, making it particularly valuable in construction, infrastructure, and large-scale commercial projects. The guarantee typically includes specific triggers for payment, performance standards, claim procedures, and remedy provisions. It serves as a risk mitigation tool, providing beneficiaries with recourse against a financially sound guarantor if the principal debtor fails to meet either payment or performance obligations.
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1. Parties: Identification of guarantor, beneficiary, and principal debtor
2. Background: Context of the underlying obligation and purpose of guarantee
3. Definitions: Key terms used throughout the guarantee agreement
4. Guarantee: Core guarantee provisions and scope of obligations
5. Payment Terms: Conditions and timing of guarantee payments
6. Duration: Term of the guarantee and conditions for termination
7. Representations and Warranties: Statements of fact and assurances made by the guarantor
8. Enforcement: Rights and mechanisms for enforcing the guarantee
9. Governing Law and Jurisdiction: Laws governing the guarantee and courts having jurisdiction
1. Security Provisions: Additional security arrangements when guarantee is secured by assets
2. Performance Standards: Specific performance criteria for performance guarantees in construction/service contracts
3. Step-In Rights: Rights to take over obligations in project finance or construction guarantees
4. Financial Covenants: Financial maintenance requirements for corporate guarantors
5. Multiple Guarantors: Provisions governing relationships between multiple guarantors when applicable
1. Schedule 1 - Form of Demand: Template for making claims under the guarantee
2. Schedule 2 - Underlying Agreement: Copy or summary of the principal agreement being guaranteed
3. Schedule 3 - Security Details: Details of any security provided for secured guarantees
4. Schedule 4 - Performance Metrics: Detailed performance standards and measurement criteria
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