Construction Law/Rejection of Performance Bond by Employer
Hello, I would be greatful to receive an answer on the following.
The Contract is under FIDIC 99. We as Contractor for the road construction submitted to the Employer a Performance Guarantee from our main bank. However, as insisted by our Bank, the guarantee has a fixed expiry date corresponding to the stipulated construction period. The Employer refuses to accept that, and claimed it should be open ended.
Am I right that this is against 4.2 of Red Book? How can this issue be treated? There are no particular requirements to the Bank stipulated in Contract. Is there any provision for the Employer to reject the Guarantee without any reason?
Thank you in advance.
Thanks for your enquiry. My apologies for late response as I was travelling.
Fixed expiry date, most of the times is not accepted by the Employer. The reason being project delays which might render Performance Security as null and void if the fixed expiry date is surpassed and Performance Security is not renewed in timely manner.
Therefore to avoid such scenarios Employers insist to have an open ended bonds or automatically renewed types.
Per Sub-clause 4.2, Employer Acceptance is must for Performance Security. This Sub-clause particularly states "......or in another form approved by the Employer"
If your bank in not okay with open ended/automatically renewed intention, you may propose to insert a sentence like "....The Expiry date shall be dd/mm/yy or completion of DNP whichever is later"
Hope this helps.