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The Performance Guarantee Agreement is a crucial document in Saudi Arabian commercial transactions, particularly in projects requiring substantial performance commitments. It serves as a risk mitigation tool where a Guarantor (typically a bank or financial institution) provides assurance to a Beneficiary regarding the performance obligations of a Principal. This document is commonly used in construction projects, government contracts, and major commercial transactions where performance security is required. The agreement must comply with Islamic Sharia principles, Saudi Arabian Monetary Authority (SAMA) regulations, and local commercial laws. It typically includes detailed provisions for guarantee activation, demand procedures, payment mechanisms, and enforcement protocols. The document is essential for projects requiring performance security and is structured to provide clear, enforceable rights while maintaining compliance with Saudi Arabia's legal framework.

1. Parties: Identification of the Guarantor, Principal (party whose performance is being guaranteed), and Beneficiary

2. Background: Context of the underlying obligation and purpose of the guarantee

3. Definitions: Definitions of key terms used throughout the agreement, including Guaranteed Obligations, Guarantee Period, and Maximum Liability Amount

4. Guarantee and Indemnity: Core provisions detailing the guarantee obligations, including scope, limitations, and conditions for calling upon the guarantee

5. Duration and Release: Term of the guarantee and conditions for its release or expiry

6. Demand Requirements: Procedures and requirements for making a valid demand under the guarantee

7. Payment Terms: Terms and conditions for payment upon valid demand, including timeline and method

8. Representations and Warranties: Standard representations and warranties from all parties, ensuring compliance with Sharia principles

9. Principal's Obligations: Obligations of the principal debtor, including information provision and maintaining underlying performance

10. Enforcement: Provisions for enforcement in accordance with Saudi law and jurisdiction

11. Governing Law and Jurisdiction: Explicit statement of Saudi law as governing law and jurisdiction of Saudi courts

12. Notices: Communication procedures between parties

13. Execution: Signature blocks and execution requirements