A Performance Bond (or Guarantee) is a crucial part of construction contracts, ensuring that the project will be completed according to agreed standards. If the contractor fails to perform the work or performs it poorly, the client has the right to claim money from the bond to cover losses. Disputes over performance bonds arise when parties disagree on whether a material breach of contract occurred that justifies calling the bond. Often, clients attempt "unfair calling" of the bond to gain financial leverage, while contractors try to stop this process through the courts.
These disputes are complex as they often involve not just legal but technical issues: Did the project reach "substantial completion"? Are the defects serious enough to warrant calling the bond? Legal.ge gives you access to lawyers who will help you manage these risks. They will protect your interests both in the process of claiming the bond and in stopping it, taking into account international standards (e.g., URDG 758).
What Does Performance Bond Disputes Service Cover?
The service covers all aspects related to performance quality and guarantees:
- Breach Assessment: Determining whether the contractor's action (e.g., delay, defects) constitutes grounds for activating the bond.
- Claim Administration: Legal assistance for the client in the process of cashing the bond with the bank or insurance company.
- Injunction Requests: Helping the contractor obtain a temporary court order to stop the bond payment if the client's demand is fraudulent.
- Bond Extension: Disputes related to "Extend or Pay" demands when the bond is about to expire.
- Arbitration Representation: If the contract stipulates arbitration, handling bond-related disputes in the arbitral tribunal.
Common Real-World Scenarios
Performance bond disputes often start in the following cases:
The first scenario is "Abandonment." The contractor abandoned the site. The client demands the full performance bond amount to hire a new contractor. The contractor argues abandonment was the client's fault (non-payment).
The second case is "Defects upon Handover." The project is finished, but the client claims the quality is unsatisfactory and demands partial bond payment to fix defects. The dispute is about the cost of defects.
The third scenario is "Bond Expiry." The bond is expiring, but the project isn't finished. The client demands "Extend or Pay." The contractor refuses to extend due to high fees.
The fourth situation is "Fraudulent Call." The client demands the bond despite the work being fully accepted with no defects. This is a classic case where the court stops payment.
Georgian Legal Framework and Regulations
Performance bonds are regulated by:
- Civil Code: Norms on bank guarantees and rules for performing construction contracts.
- National Bank Regulations: Classification of guarantees and bank obligations.
- International Practice: FIDIC contracts and URDG 758 rules, often used in large projects.
Process and Stages
The lawyer first checks the bond text and the contract. If you are the client, a substantiated demand is prepared for the bank. If you are the contractor and believe the demand is unfair, an application is immediately filed in court for an interim measure (stopping payment). This process is very fast (a few days) because the bank has a short deadline to pay.
Why Legal.ge?
Disputes over performance bonds require immediate reaction. Even one day's delay can mean losing the funds. Specialists presented on Legal.ge will help you protect your financial resources and prevent the misuse of guarantees.
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