Few aspects of construction guarantees provoke as much concern among contractors as the prospect of a guarantee being called. It is therefore worth setting out, in some detail, exactly how the Saudi Executive Regulations structure this process, and the meaningful constraints they place on the government authority's power to act. Article 104 makes clear that the calling of the guarantee is neither automatic nor discretionary in the way contractors sometimes fear.
Before any guarantee can be called, the matter must first be presented to the bid examination committee, or, in the case of direct procurement, the direct procurement bid examination committee. This is not a formality. The committee is required to consider the matter substantively and to present a causative, meaning reasoned and justified, recommendation to the entity ultimately responsible for determining the award decision. Critically, the Regulations direct the committee to take into account both the impacts of the calling and the guarantee's remaining validity term as part of its deliberation.
This committee-level review introduces an institutional check between the initial identification of a potential breach and the final decision to call the guarantee. It is a meaningful procedural safeguard, even if it does not amount to a right of appeal or a judicial review mechanism in the traditional sense.
Beyond the procedural gateway, Article 104 imposes three distinct substantive limitations that meaningfully narrow how far a confiscation can reach.
First, the calling is restricted strictly to the guarantee associated with the specific transaction in which the contractor is alleged to have breached its obligations. It cannot be extended to capture guarantees the same contractor holds in connection with other, unrelated transactions, whether those other transactions are with the same government entity or with different ones entirely. This is a significant protection for contractors operating multiple simultaneous government contracts, since it prevents a dispute on one project from cascading into security exposure across an entire portfolio of unrelated work.
Second, the Regulations establish a purpose-limitation principle: a guarantee may not be confiscated for reasons other than those for which it was originally issued. In practical terms, this means a bid bond cannot be seized to address a performance-related alleged breach, and a performance bond cannot be confiscated in response to an issue that properly belongs to a different guarantee category altogether.
Third, in tenders that are divided into separate lots or portions, the calling of the bid bond is limited strictly to the portion of the bond corresponding to the value of the specific works actually awarded to the contractor in default. A contractor awarded only a fraction of a larger divided tender therefore cannot have its entire bid bond called over an issue affecting only its awarded portion.
Once a decision to call the bond has been properly reached through the committee process, the government authority must communicate that decision directly to the issuing bank, using the explicit phrase "Calling of Guarantee". This formal language requirement is not incidental; it ensures there is no ambiguity in the instruction sent to the bank, reducing the risk of disputes later arising from unclear or informal communications. Upon receiving a properly worded calling instruction, the bank is obligated to respond immediately.
Contractors facing the prospect of a guarantee call, or contractors negotiating contract terms upfront with an eye toward risk allocation, should keep several practical points in mind. Where a calling demand appears to extend beyond the specific transaction in breach, or attempts to draw on a guarantee for a purpose unrelated to its original issuance, there is a clear legal basis under Article 104 to challenge the scope of that demand. Similarly, in divided or multi-lot tenders, contractors should insist that any calling calculation be limited strictly to the value of the specific lot in question, supported by clear documentary evidence of the award allocation.
While these protections operate as constraints on the government authority rather than as a contractor's right to unilaterally block payment once a compliant demand has been properly issued, understanding them in detail equips contractors and their legal counsel to identify, and where appropriate contest, calling actions that exceed their proper legal scope.