Performance Guarantee Bond Template for Pakistan

Performance Guarantee Bonds are essential financial instruments in Pakistani business transactions, particularly in construction, infrastructure, and large-scale commercial projects. These bonds are commonly required when a company (Principal) enters into a contract to perform services or supply goods, with the bank (Guarantor) providing financial security to the project owner (Beneficiary). The Performance Guarantee Bond serves as a risk management tool, ensuring that the Beneficiary can recover losses if the Principal fails to fulfill their contractual obligations. Under Pakistani law, these bonds must comply with the Contract Act 1872 and relevant banking regulations, typically ranging from 5-10% of the contract value. They remain valid throughout the contract period and often include an additional claim period after contract completion.

1. Parties: Identifies the three key parties: (1) The Guarantor (bank/insurance company), (2) The Principal (contractor/supplier), and (3) The Beneficiary

2. Background: Describes the underlying contract or obligation being guaranteed and explains why the guarantee is being issued

3. Definitions: Defines key terms used in the guarantee bond, including 'Guaranteed Sum', 'Underlying Contract', 'Demand Notice', etc.

4. Guarantee: The core section stating the guarantor's unconditional undertaking to pay the specified sum upon demand

5. Amount of Guarantee: Specifies the maximum guaranteed amount and any provisions for reduction or adjustment

6. Duration and Validity: States the effective date and expiry date of the guarantee

7. Conditions for Invocation: Specifies the circumstances and process for making a demand under the guarantee

8. Payment Terms: Details the timing and method of payment upon receipt of a valid demand

9. Governing Law and Jurisdiction: Specifies Pakistani law as governing law and defines jurisdiction for disputes

10. Execution: Formal execution block with signature requirements and witness provisions