Performance Letter Of Guarantee Template for the United Arab Emirates

A Performance Letter of Guarantee is a critical banking instrument that provides financial assurance in UAE commercial transactions. When you enter into significant contracts or participate in tenders, this document serves as security that guarantees your performance obligations will be met or compensation will be provided to the other party.

When do you need this document?

You'll require a Performance Letter of Guarantee when participating in government tenders, securing construction contracts, or entering into major supply agreements in the UAE. Banks typically issue these guarantees for amounts ranging from 5% to 10% of the contract value, though this can vary based on the specific agreement. The document is particularly crucial for international companies bidding on UAE projects, as it demonstrates financial credibility and commitment to local authorities and private sector clients. Many UAE government entities and large corporations mandate performance guarantees as a standard requirement before contract award.

Key legal considerations

Your Performance Letter of Guarantee must include specific mandatory elements to ensure enforceability under UAE law. The document requires precise identification of all parties, including the issuing bank, principal, and beneficiary, along with clear reference to the underlying contract. The guarantee amount must be stated in both figures and words, specifying the currency and any applicable charges. Crucially, you must define the exact conditions under which the guarantee can be called, the validity period, and the required documentation for claims. The guarantee should specify whether it follows the ICC Uniform Rules for Demand Guarantees (URDG 758) or UAE banking practices, as this affects the claiming process and dispute resolution procedures.

Legal requirements in United Arab Emirates

Under UAE Federal Law No. 18 of 1993 (Commercial Transactions Law), particularly Articles 414-419, your Performance Letter of Guarantee must comply with specific commercial transaction regulations. The issuing bank must be licensed by the UAE Central Bank and follow Circular No. 7/2020 regarding guarantee issuance procedures. The document requires authentication by relevant UAE authorities, often including the Chamber of Commerce, depending on the underlying contract's nature. You must ensure the guarantee includes provisions for governing law, typically UAE law, and specify the competent courts for any disputes. The validity period cannot exceed the underlying contract duration plus a reasonable grace period, usually 28 days. Additionally, the guarantee must clearly state whether it's unconditional or conditional, as this significantly impacts the beneficiary's ability to make successful claims under UAE banking regulations.