What is Bank Guarantee?
A bank guarantee is a written commitment from a bank to pay a beneficiary a specified amount if the bank’s client fails to fulfill a contractual obligation. It backs performance, payment, or bid commitments.
How It Works
- Client requests the guarantee from their bank.
- Bank issues the guarantee in favor of the beneficiary.
- Beneficiary can call on the guarantee if the client defaults.
Saudi Context
Saudi government tenders and large private contracts routinely require bid bonds (1 to 2%) and performance bonds (5 to 10%) issued by SAMA-licensed banks.
Example
A Saudi contractor wins a SAR 100 million MOH tender. Its bank issues a SAR 5 million performance bond in favor of the ministry.