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The Payment and Performance Guarantee is a crucial financial instrument in Saudi Arabian business transactions, particularly in construction and infrastructure projects. It is commonly required when a contractor or service provider enters into significant commercial contracts, especially government tenders. The guarantee serves a dual purpose: ensuring the contractor's performance meets specified standards and securing financial obligations. The document must comply with Saudi Arabian law, including Sharia principles and SAMA regulations, making it distinct from conventional guarantees in other jurisdictions. It typically specifies the guaranteed amount, duration, conditions for calling the guarantee, and payment terms. This type of guarantee is often mandatory for government contracts under Saudi procurement laws and is widely used in private sector projects to mitigate risk.

1. Parties: Identification of the Guarantor (typically a bank), the Beneficiary, and the Principal (the party whose obligations are being guaranteed)

2. Background: Context of the guarantee, including reference to the underlying contract or obligation

3. Definitions: Key terms used throughout the guarantee, including 'Guaranteed Obligations', 'Guarantee Amount', 'Expiry Date', and other relevant terms

4. Guarantee and Indemnity: Core obligations of the guarantor, including the specific amount and scope of the guarantee

5. Demand Requirements: Procedures and conditions for making a valid demand under the guarantee

6. Duration and Expiry: Term of the guarantee, including start date, expiry date, and any extension provisions

7. Payment Terms: Specifics of how and when payment will be made following a valid demand

8. Reduction and Release: Conditions under which the guarantee amount may be reduced or the guarantee released

9. Governing Law and Jurisdiction: Confirmation of Saudi law as governing law and jurisdiction for disputes

10. Notices: Communication procedures between parties, including addresses and acceptable methods of notification