Case study · Practitioner

Case: Construction Performance Guarantee

A contractor must provide a local guarantee to an overseas employer.

Contract award

Employer requires a 10% performance guarantee from an acceptable local bank.

Contractor bank application

Contractor asks its home bank for support; bank approves a counter-guarantee facility.

Counter-guarantee

Home bank issues counter-guarantee to the beneficiary-country bank, potentially via MT760.

Local guarantee

Local bank issues the demand guarantee directly to the employer.

Project period

Both undertakings remain outstanding; expiry periods are coordinated.

Demand

If employer makes a compliant demand under the local guarantee, local guarantor examines it.

Counter-demand

Local bank may make a separate demand under the counter-guarantee according to its terms.

Settlement

Each bank pays under its own independent undertaking if the relevant presentation complies.

What this case teaches

Before looking only at the outcome, separate the instrument from the surrounding transaction. Use these questions every time.

Instrument
What undertaking, payment method or document is actually involved?

Rules & deadline
What rules, expiry, maturity or presentation deadline controls the next step?

Evidence
Which facts are independently verified and which are only counterparty claims?

Bank action
What must the bank authenticate, approve, examine or settle?

Remember: a case illustrates a method of thinking. A real bank may require different documents, approvals or procedures.

Case check0 / 1 answered · 0 correct

Can the home bank simply assume the local guarantee and counter-guarantee have identical conditions?