Traditionally, the international construction industry has a high risk of non-performance by contractors (usually in respect of delay). The common practice is that contractors are required under construction contracts to submit various performance-type guarantees to clients, in order for the client to secure, inter alia, timely completion of work, or to be protected against the consequences of delay.
Guarantees used in international construction projects are generally stand-alone guarantees to which the principle of independence applies; standby letters of credit, surety bonds and demand guarantees are often used for this purpose, amongst which demand guarantees are the most widely used.
Since the 1970's demand guarantees have been common in the buyer-oriented construction market, but lack of uniform rules for them had resulted in excessive time and cost required for the negotiation of individual terms of each guarantee, and the outcome of such negotiations had often failed to reflect a balance of the interests of the parties. These circumstances led the financial institutions involved to develop a set of uniform rules for demand guarantees, resulting in the Uniform Rules for Demand Guarantees ("URDG458") from the ICC in 1992, which was later revised in 2010 to URDG758.
Nowadays, URDG758 is widely welcomed both by issuing banks and by beneficiaries. Although the URDG758's drafters did not intend the rules to govern the detailed rights and obligations vis-a-vis the applicant and issuing bank, in practice they give certainty and clarity to the applicant's role by way of a being a mediator for the negotiation of the guarantee terms between the issuing bank and the beneficiary in providing a set of rules which can be used as a standard.
This study first explores the current application status and role of URDG758 in the international construction industry from an applicant's perspective, and then investigates the matters which could be considered in future revisions of URDG for the sake of applicants' protection.