The Performance Bond is called with a demand served by the beneficiary to the guarantor in order to receive the payment of the amount stated in the demand itself and within the cap set by the bond. On the one hand, it is true that such guarantee, if used fairly, represents a good protection for the beneficiary, on the other hand, there are various situations where the bond is used unlawfully.

In particular, we refer to all those cases in which the calling is considered as ‘abusive’ or ‘fraudulent’.

The Performance Bond is an autonomous guarantee at first demand which is issued by the guarantor upon instructions of a subject (for example, the seller or the contractor, so-called ‘applicant’) based on a contract stipulated between the guarantor and the applicant.

The applicant submits the request to issue the bond according to the conditions of the underlying contract stipulated between the seller/contractor and purchaser/owner and to secure the due performance in favour of the latter.

The calling of the performance bond is fraudulent when the beneficiary demand the payment to the guarantor without having however the right to do so and being aware of this so that the result will be that the beneficiary will obtain an unfair profit.

The Performance Bond is, in almost all the cases, an autonomous and on-demand guarantee which can be called with a simple request sent by the beneficiary to the bank-guarantor. As any other aspect which regulates the Performance Bond, also its calling must comply with specific requirements which are normally indicated in the text of the bond. If the text does not specify anything, it is advisable to follow international standard practices laid down on this.

In international commercial transactions, it is very common for the importer/owner to request the supplier/contractor to issue a Performance Bond (i.e., almost always an autonomous and on-demand guarantee) to be called in the event of breach of some of the contractual obligations, as agreed in the underlying contract.

The Performance Bond is a guarantee by means of which the purchaser or the owner secure the risk of the default of the counter-party (the supplier or the contractor). In case of default, the purchaser will obtain a sort of indemnity from the subject who issued the bond (usually a bank, called also the ‘guarantor’).

One of the most frequent problems in international construction projects (and more generally in international commerce) is represented by the issue of bonds or guarantees that the Employer requests to secure the performance of the contract. The purpose of said bonds (such as the Performance Bond) is to guarantee the Employer that he will recover any loss or damage that it might suffer as a consequence of the breach of the Contractor. 

The Performance Bond is an on-demand guarantee (or rather, under Italian Law, it is an ‘autonomous’ and at first demand' guarantee) by virtue of which the beneficiary (as buyer or owner) can obtain a certain amount of money on the basis of a simple request submitted to the guarantor declaring that the other party has breached some of its contractual obligations.

No need for the beneficiary to prove the actual default.

Mora & Associati, with a team composed of Giuseppe Broccoli and Elisabetta Ventrella, won another Italian legal proceeding for the calling of a USD 6.5 Million Performance Bond issued by an Italian Bank in favor of a foreign Owner in connection with the construction of a mine plant in the Republic of Zambia.

Mora & Associati is pleased to announce that the Partner Giuseppe Broccoli has been nominated as Thought Leader by Who's Who Legal in the 2019 Construction Directory.

This is a great recognition for our Partner and for the work done by our Firm in several International Construction Projects.

Also this year BdaLaw has contributed to 'Doing Business 2019: Training for Reform' the annual Report of the World Bank.

Giuseppe Broccoli and Elisabetta Ventrella have dealt with Italian regulations on starting a business, dealing with construction permits and registering property.

Also this year BdaLaw has contributed to 'Doing Business 2019: Training for Reform' the annual Report of the World Bank.

Giuseppe Broccoli and Elisabetta Ventrella have dealt with Italian regulations on starting a business, dealing with construction permits and registering property.

The Performance Bond

The Contractor signed with the Supplier a contract for the supply of certain major components in respect of the revamping of a power station in Middle East. The contract provided the issue of a Performance Bond to secure the proper and timely performance of the Supplier's obligations.

Giuseppe Broccoli, Elisabetta Ventrella and Fabio Zanchi have contributed to the 'Doing Business 2018: Reforming to create jobs' survey for Italy in respect of the following sections:

BdaLaw is honored to have contributed to the 12th edition of Construction, a volume in the Getting the Deal Through series of annual reports which provides international analysis in key areas of law and policy for corporate counsel, crossborder legal practitioners and business people.

The Performance Bond is a guarantee which secures the Employer from the risk of possible breaches by the Contractor during the execution of the works. It can be risky for the Contractor for several reasons and above all because it is a guarantee which remains in force for the entire life of the construction project.

In international construction projects, it is rather standard that the Contractor starts the mobilisation/procurement just after an advance payment has been paid by the Employer. But how does it work and how can you negotiate it at your best?

In construction contracts, disputes are extremely  frequent  especially in international projects. The claiming is almost inevitable and controversies concerning extra works,  extension  of time, liquidated damages for (alleged or actual) delay of the Contractor, or for the calling of the bonds issued by the Contractor for (alleged or actual) default from the Contractor itself are almost the ordinary course of a project.

The Bid Bond guarantees the Employer that the bidder will sign the contract, if awarded, or will comply with other specified obligations (such as to issue other bonds as provided in the bidding documentation). They are rather frequent, especially in mid/big size projects.

The Warranty Bond is a guarantee which secures the Employer in the case the Contractor will not remedy the defects, if any, which may occur during the warranty period of the works. 

It is often issued by an insurance company or (especially in mid size international projects) by a bank and it provides the payment of a sum of money if the Contractor will not perform any remedial work as provided in the contract, a sum which will be used by the Employer to have the remedial works carried out by a third party.

Bonds in construction contracts are often a pain point for Contractors. Especially in international construction projects they are frequent and are used to protect in a way or another the Employer from various breaches and non-performance of the Contractor.

Construction bonds are however rather risky for the Contractor especially if they are issued in the form of an on-demand bond. 

In international construction projects, it is standard practice for the Employer to request guarantees to secure the performance of the Contractor. The most frequent guarantees are the bid bond, the advance payment bond, the performance bond and the warranty bond. Let’s see the features of each of them and then the form that they usually have in the practice. 

The construction industry has always been characterised by a high volume of disputes for several reasons. The 2017 Arcadis report highlights some interesting findings based on their engagements in the Middle East over the previous twelve months. Arcadis (the well-known and authoritative consultancy firm) observed an increase in the number of disputes in the Middle East, which has certainly been influenced by the current economic situation in GCC countries. 

According to the most recent report issued by Deloitte, infrastructure investment in the GCC has remained high in the last three consecutive years and registered a record number in 2014 at US$171 billion.

There is a realization from governments of the dependence of their economies on public spending on projects and the necessity to maintain a certain level of spending and activity so as not to undermine future growth.

The third Annual General Meeting of WLA took place in Dubai from 13 to 14 April 2017.

Three years ago a small number of independent Law Firms (including BDA Studio Legale) decided to establish a Network different from the thousands of Lawyers' Network already existing.

The 2016 Report from the Italian Association of Contractors shows that international construction projects are a big portion of their revenues. The Report highlights also that this is a trend which involves not only the big companies but also the SME companies.

The analysis of the domestic and international revenues has been conducted on 38 Italian companies (with turnover between €50 Million and above  €500 Million) and clearly shows an increase in international construction projects and at the same time a decrease of the revenues generated domestically. 

In mid-big sized projects, it is a crucial to understand how to subcontract part of the works especially in an international construction project. The various issues involved in subcontracting part of the works can determine the success or the failure of a project and/or can massively increase the financial risks and/or losses for either the Employer or the Contractor.

In international construction projects, the Employer (and certainly the Contractor) may suffer the consequences of a wrong selection of the Subcontractor and this may have an impact on the timing for completion or on the quality of works executed.

A letter of patronage can be considered either as a mere declaration of courtesy to looking at them, on the one hand, as binding guarantees ("fidejussione") or, on the other hand, as an undertaking to fulfil the obligations of a third party.

BDA Studio Legale is honored to have contributed to the tenth edition of Construction, a volume in the Getting the Deal Through series of annual reports which provides international analysis in key areas of law and policy for corporate counsel, crossborder legal practitioners and business people.

Also this year BDA Studio Legale has contributed to the World Bank report "Doing Business 2016: Measuring Regulatory Quality and Efficiency". Giuseppe Broccoli, Elisabetta Ventrella and Ludovica Citarella have contributed to the following sections:

New conflict resolution method, in addition to the already existing mediation, through settlement negotiation before referring disputes to Courts has been recently introduced in the Italian legal system.

Giuseppe Broccoli and Elisabetta Ventrella have contributed to the Doing Business 2013 survey for Italy in respect of the following sections: