Performance guarantees in construction contracts

Guarantees are common in construction and engineering projects. Performance guarantees are designed to ensure that the contractor delivers goods or performs services in accordance with the terms of the contract. If the contractor fails to perform in terms of the contract, it is likely that the employer will suffer a loss.

This may be because of delay or because the employer is obliged to pay a higher price to acquire the goods or services elsewhere or in procuring completion of the relevant works or projects. This instrument will include a financial cap on the issuer's liability, and it is used by parties as a means of protection against non-performance by the other party and for this reason, they are often referred to as "performance security".

Listen to Construction & Engineering Sector Head and Director, Clive Rumsey and Candidate Attorney, Iva Babayi as they discuss performance guarantees in construction contracts.