Challenges facing the Middle East construction industry: performance bonds – part one

Construction is recognised as both a major driver of economic growth and a fundamental instrument in the eradication of poverty. However, there is still an infrastructure deficit in many countries. Over the last 50 years, this has led an increasing number of contractors to look at opportunities in new jurisdictions. In doing so, they must be alive to the inherent differences between regions and their associated risks. This includes, arguably, one of the most significant risks, a principal’s right to cash performance related bonds.

Our podcast series focuses on the key challenges facing the construction industry in the Middle East. In this two-part episode, Andrew Archer, Duncan Miller SC and William Marshall discuss the commercial purpose behind cash performance bonds and the differing approaches local Courts have taken to intervening in a relationship between a contractor and a principal. They identify when, how and why the approaches differ using real life examples from multiple jurisdictions, and analyse what learnings contractors might be able to take away so as best to protect their position moving forwards.

In the first part, Andrew, Duncan and Wiliam seek to answer the following questions:

• What is a performance bond and what is its commercial purpose?
• Are performance bonds still autonomous instruments and ‘as good as cash’, as some would say? Or if not, how are they now assessed and viewed by the courts in different jurisdictions? 
• Which jurisdictions have gone further down the sliding scale in allowing intervention and why?

During this episode, contractors will gain a clear understanding of cash performance bonds and their usage, and will start to build a picture of the differing approaches jurisdictions take to the subject. 

In the second and final part of this episode, Andrew, Duncan and William look at real life cases across different jurisdictions whereby the Courts have intervened in the calling of performance bonds.

Listen to part two of the episode