On-Demand Guarantees: What Every International Contractor Needs to Understand

14 August 2025

The Dominant Form of International Performance Security

In international construction contracts — particularly those governed by FIDIC forms or procured in the Middle East, Africa, and parts of Asia — the most common form of performance security is the on-demand guarantee. Understanding how it works, and how it differs from the conditional performance bonds used in some other markets, is essential for any contractor operating internationally.

What Is an On-Demand Guarantee

An on-demand guarantee (sometimes called an unconditional demand guarantee) is a financial instrument under which the guarantor — typically a bank or surety provider — commits to paying the beneficiary a specified sum upon demand, without requiring the beneficiary to prove that the contractor has actually defaulted or breached the contract.

The phrase 'on demand' is the critical element. The employer can call the bond by issuing a written demand that states, in the required form, that the contractor is in breach of its obligations. The guarantor is then obliged to pay, without investigating the merits of the claim or waiting for arbitration or court proceedings to conclude.

The ICC Uniform Rules: URDG 758

Most on-demand guarantees in international construction contracts are subject to the International Chamber of Commerce Uniform Rules for Demand Guarantees — URDG 758, effective from 2010. FIDIC's 2017 forms specifically reference URDG 2010 Revision as the applicable framework. The URDG provides a standardised set of rules governing how demands are made, how they are presented, and how the guarantor must respond.

Under URDG 758, a complying demand must include a signed statement by the beneficiary specifying that the contractor is in breach of its obligations under the underlying contract, and in what respect. This provides a modest level of protection against purely arbitrary calls — but it does not require the employer to demonstrate the breach to the guarantor's satisfaction before payment is made.

The Risk for Contractors

The unconditional nature of on-demand guarantees is a significant risk for contractors. If an employer and contractor fall into dispute, the employer has the ability to call the bond as a tactical measure — even if the contractor's position in the underlying dispute is defensible. While this is generally considered an abuse of the instrument, it is difficult and expensive to prevent through injunction, and the contractor's practical remedy may be limited to pursuing the employer in arbitration after the bond has been paid.

Why the Form of the Guarantee Matters

For contractors accepting a bond requirement in their contract, the form of the guarantee — its governing rules, the conditions for demand, and the jurisdiction of the guarantor — all affect the risk profile of the instrument. Working with a guarantor and an adviser who understands these distinctions is important.

Solidum Global works with partners who are experienced in providing on-demand guarantees in the correct form for international FIDIC and equivalent contracts. Submit an enquiry to discuss your specific requirement.

Reference: International Construction Knowledge Hub — On-Demand Bonds, Injunctions and FIDIC Contracts: internationalconstructionknowledgehub.com

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