Bank guarantee

A bank guarantee is a unilateral undertaking by a bank (the guarantor) to pay a specified amount to the beneficiary if the applicant (its client) fails to meet their contractual obligations. It is a fundamental security instrument in international trade.

Bank guarantees are governed by the URDG 758 (Uniform Rules for Demand Guarantees) of the ICC. Two main types exist:

Demand guarantee: payable on a simple written statement by the beneficiary, without the bank verifying the merits of the dispute
Conditional guarantee: payable only upon proof of the applicant's default

Bank guarantees cover numerous situations: performance, bid submission, advance payment return, payment, and retention. Their cost ranges from 0.5 % to 3 % per annum of the guaranteed amount.

They are particularly common in international public procurement, construction contracts, and large industrial projects.

Questions on this topic

How Binding Is 'Clean on Board' B/L for Letter of Credit Payment if Captain Notes Packaging Issues? UCC & CJEU Practice

MRN export non certifié sous DELTA I/E : qui contacter quand le basculement ne se fait pas et comment tracer l’anomalie ?

In your opinion, is it worth switching to Vietnamese textile suppliers if proving forced labour compliance under the new EU rules is just as hard as with China?