Bonds in international supply contracts
Bonds in international supply contracts

The following Commercial guidance note provides comprehensive and up to date legal information covering:

  • Bonds in international supply contracts
  • Types of bonds
  • On-demand performance bonds in international supply contracts
  • Sanctions and trade embargoes
  • Injunction

This Practice Note, Bonds in international supply contracts, sets out an introduction to the most common types of bonds used in international supply contracts such as pre-qualification bonds, tender (or bid bonds), advance payment bonds (APB), maintenance bonds, completion bonds, retention bonds, customs bonds and facility bonds. Bonds or guarantees are used on many projects in order to provide security to the customer against the supplier's non-performance. The Practice Note also considers how trade sanctions and embargoes may affect the performance of contractual obligations in international contracts for which a bond or guarantee may be required.

Types of bonds

Cross-border transactions may involve a string of guarantees and indemnities. The buyer may require a guarantee for obligations owed by the seller under the contract, and may insist that the guarantee is:

  1. issued by a bank, and

  2. payable in the buyer's home country

Bonds may be conditional or payable on demand. A conditional bond is payable on the terms specified in the guarantee, and is generally conditional upon actual default under the underlying contract as evidence by an arbitration award or judgment in favour of the beneficiary of the bond. A demand guarantee is unconditional and payable upon first, usually written, demand.

An international supply contract may have a bond put in place for a specific purpose depending on the point at which