The Contract Performance Guarantee is a fundamental security instrument in Malaysian commercial practice, commonly used in significant business transactions and projects. It serves as a risk mitigation tool where a financial institution (typically a bank) guarantees the performance obligations of a contractor or service provider. This document becomes essential in scenarios where parties require security for substantial contracts, particularly in construction, infrastructure, or large-scale service agreements. The guarantee typically covers a percentage of the contract value and remains valid throughout the contract period plus a defect liability period. Under Malaysian law, these guarantees are regulated by the Contracts Act 1950 and the Financial Services Act 2013, providing a robust legal framework for enforcement. The document includes specific provisions for making demands, payment obligations, and expiry conditions, offering protection to the beneficiary while defining clear parameters for the guarantor's liability.
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Key Requirements PROMPT example:
Contract Performance Guarantee
"I need a Contract Performance Guarantee for a construction project in Kuala Lumpur, where HSBC Malaysia will guarantee MYR 5 million for ABC Construction Sdn Bhd's performance of a shopping mall development, with the guarantee valid until March 2025."
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1. Parties: Identifies the Guarantor (typically a bank or financial institution), the Beneficiary (party receiving the guarantee), and the Principal (party whose performance is being guaranteed)
2. Background: Describes the underlying contract being guaranteed and the purpose of the guarantee
3. Definitions: Defines key terms used in the guarantee including 'Guaranteed Obligations', 'Guarantee Amount', and 'Expiry Date'
4. Guarantee and Indemnity: Core section detailing the guarantee obligations, including the maximum guaranteed amount and nature of the guarantee
5. Demand Requirements: Specifies the form and procedure for making a demand under the guarantee
6. Payment Obligations: Details the timing and method of payment upon receipt of a valid demand
7. Duration and Release: Specifies the validity period of the guarantee and conditions for its release or expiry
8. Representations and Warranties: Standard representations by the Guarantor regarding its capacity and authority
9. Assignment and Transfer: Restrictions on assignment or transfer of rights under the guarantee
10. Governing Law and Jurisdiction: Specifies Malaysian law as governing law and jurisdiction for disputes
1. Counter-Indemnity: Optional section where the Principal agrees to indemnify the Guarantor - typically used when required by the Guarantor's internal policies
2. Step-in Rights: Gives the Guarantor the right to step in and remedy defaults - included when requested by the Guarantor
3. Multiple Guarantors: Additional provisions for cases involving more than one guarantor
4. Tax Gross-up: Provisions for tax treatment of payments - included when tax implications are significant
5. Currency Provisions: Specific provisions for guarantees involving foreign currency - used in international transactions
1. Form of Demand: Template for making a valid demand under the guarantee
2. Underlying Contract Details: Key details of the contract being guaranteed including contract reference, date, and parties
3. Payment Details: Banking and account details for payment under the guarantee
4. Authorized Signatories: List of persons authorized to make demands under the guarantee
Authors
Relevant legal definitions
Clauses
Relevant Industries
Construction
Infrastructure Development
Engineering
Manufacturing
Energy and Utilities
Telecommunications
Government and Public Sector
Real Estate Development
Oil and Gas
Technology Services
Relevant Teams
Legal
Finance
Project Management
Risk Management
Commercial
Procurement
Operations
Treasury
Compliance
Business Development
Relevant Roles
Project Manager
Contract Manager
Legal Counsel
Finance Director
Risk Manager
Commercial Director
Chief Financial Officer
Procurement Manager
Business Development Manager
Construction Manager
Operations Director
Company Secretary
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