The Performance Guarantee Agreement is a crucial document in Pakistani commercial transactions, particularly in construction, infrastructure, and government contracts. It provides financial security to the beneficiary by ensuring that a third party (typically a bank or financial institution) will compensate them if the principal obligor fails to perform their contractual obligations. The document must comply with Pakistani law, including the Contract Act 1872 and relevant banking regulations. It typically specifies the guarantee amount, validity period, conditions for demand, payment mechanisms, and dispute resolution procedures. The agreement is commonly required in tender submissions, large commercial contracts, and project implementations where the beneficiary seeks security against non-performance or default.
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1. Parties: Identification of the Guarantor, Principal (the party whose performance is being guaranteed), and Beneficiary
2. Background: Context of the guarantee, reference to the underlying contract/obligation being guaranteed
3. Definitions and Interpretation: Key terms used in the agreement and rules of interpretation
4. Guarantee and Its Scope: Core guarantee provisions, including the maximum guarantee amount and nature of guaranteed obligations
5. Demand Requirements: Process and conditions for making a demand under the guarantee
6. Payment Obligations: Terms and timing of payments upon valid demand
7. Duration and Expiry: Validity period of the guarantee and conditions for expiry
8. Representations and Warranties: Standard declarations by the guarantor regarding capacity and authority
9. Independent Obligation: Confirmation that the guarantee is independent of the underlying contract
10. No Discharge: Circumstances that do not affect the validity of the guarantee
11. Governing Law and Jurisdiction: Specification of Pakistani law and relevant jurisdiction
12. Notices: Communication procedures between parties
13. Miscellaneous: Standard boilerplate provisions including amendments, assignments, and severability
1. Counter-Indemnity: Required when the principal agrees to indemnify the guarantor
2. Multiple Guarantors: Include when there is more than one guarantor, defining joint and several liability
3. Performance Metrics: Needed when guarantee is tied to specific performance indicators or milestones
4. Step-In Rights: Optional provisions allowing guarantor to take over performance in certain circumstances
5. Currency Provisions: Required for cross-border guarantees or when multiple currencies are involved
6. Assignment and Transfer: Detailed provisions when guarantee rights need to be transferable
7. Bank-Specific Provisions: Required when guarantor is a banking institution, including regulatory compliance clauses
1. Form of Demand: Template for making valid demands under the guarantee
2. Underlying Contract: Copy or key terms of the contract being guaranteed
3. Performance Criteria: Detailed metrics or standards that trigger the guarantee
4. Authorized Signatories: List of persons authorized to make demands or give notices
5. Calculation Mechanism: Formula or method for calculating guarantee amounts if variable
6. Required Documents: List of documents to be submitted with any demand
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