Amongst its main purposes, Saudi Tender Law aims at promoting ’integrity and competitiveness, maintain equality, ensure fair treatment of bidders, in fulfilment of the principle of equal opportunity.’

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.