Payment And Performance Guarantee Template for Saudi Arabia

You need a Payment and Performance Guarantee when entering into significant contracts in Saudi Arabia, particularly for construction, infrastructure, or government projects. This dual-purpose financial instrument combines payment security and performance assurance, protecting project owners while ensuring contractors can demonstrate their financial capability and commitment to contractual obligations.

When do you need this document?

You must obtain this guarantee for government contracts under Saudi procurement laws, where it's typically mandatory for projects exceeding specified value thresholds. Private sector projects also commonly require these guarantees, especially in construction, oil and gas, telecommunications, and major commercial developments. Banks and financial institutions need this document when providing security for their clients' contractual obligations, while project owners use it to mitigate risks associated with contractor default or non-performance.

Key legal considerations

Your guarantee must clearly define the guaranteed amount, which often ranges from 5% to 20% of the contract value depending on project requirements. The document should specify conditions for calling the guarantee, payment terms, and expiry dates aligned with project completion milestones. You need to ensure proper identification of all parties including the guarantor bank, principal contractor, and beneficiary. The guarantee should include provisions for amendments, partial releases, and circumstances that may extend or reduce the guarantee period. Consider including force majeure clauses and dispute resolution mechanisms that comply with Saudi legal requirements.

Legal requirements in Saudi Arabia

Your guarantee must comply with Sharia law principles, particularly the concept of Kafala (guarantorship) and prohibition of Riba (interest-based transactions). Under SAMA Banking Control Law, only licensed banks can issue these guarantees, and the document must meet specific regulatory standards. The Saudi Commercial Law requires clear definition of obligations and remedies, while government contracts must comply with the Government Tenders and Procurement Law provisions. You should ensure the guarantee includes proper Arabic translations where required and follows Saudi Civil Transactions Law for contract formation and enforcement. The document must specify jurisdiction for dispute resolution, typically Saudi courts or approved arbitration centers, and include compliance statements with relevant Saudi regulations.