3 SECURING PERFORMANCE
Under clause 4.2 of both Books the Contractor has an obligation to provide
security for his proper performance of the contract. Such security typically
takes the form of an on-demand bond or guarantee, payable by an issuing
bank or insurance company up to a certain amount on presentation of a writ-
ten demand of the Employer without proof of actual default by the Contractor
(see Section 2.5 above).
The Contractor is to obtain the security (at his cost) in the amount and
currencies stated in the Appendix to Tender (Yellow Book) or Particular
Conditions (Silver). If an amount is not stated then the obligation to provide
the security does not apply.
In the Silver Book, the Contractor is to deliver the performance security to
the Employer within 28 days after both parties have signed the Contract
Agreement, and in the Yellow within 28 days of receiving the Letter of
Acceptance. The security is to be issued by an entity and from within a
country (or other jurisdiction) approved by the Employer, and to be in the
form annexed to the Particular Conditions or in another form approved by
the Employer.
In both Books, the Employer is not to make a claim under the performance
security except for amounts to which the Employer is entitled under the
contract in the event of:
●
failure by the Contractor to extend the validity of the security (in which
event the Employer may claim the full amount of the security);
●
failure by the Contractor to pay the Employer an amount due within a
period of 42 days;
●
failure by the Contractor to remedy a default within 42 days after receiving
the Employer ’ s notice requiring the default to be remedied; or
●
circumstances which entitle the Employer to termination under the con-
tract (clause 15.2), whether or not notice of termination has been given.
A performance security could be open to abuse by an Employer. The FIDIC
contracts all provide that in the event that the Employer makes a call under
the security which he was not entitled to make then he must indemnify the
Contractor against all damage, loss and cost resulting from the improper call
(clause 4.2).