FIDIC reference
Sub-Clause 4.2 — Performance Security
Security for the Contractor’s performance: form, amount, validity and conditions for a call.
Applies in: Red BookYellow BookSilver Book
The Contractor provides Performance Security (usually a bank guarantee) in the amount and form set in the Contract Data within 28 days of the Letter of Acceptance. The Employer may call it only in the listed cases (4.2.2), which protects the Contractor from an unjustified call. It remains valid until the Performance Certificate and is then returned. Non-standard terms and an unclear release trigger are a common tender risk.
Key points
- Provided within 28 days of the Letter of Acceptance.
- Amount and form per the Contract Data.
- A call is allowed only on the 4.2.2 grounds.
- Valid until the Performance Certificate, then returned.
How this works in practice
Performance security turns into a problem in two situations. First, the guarantee expires before the defects period closes, and the Contractor faces a demand to extend under threat of an immediate call. Second, the Employer calls an on-demand instrument without proving breach: the bank pays against formal compliance, and the Contractor recovers the money only through a dispute. That is why the grounds for calling, and whether prior notice is required, are the critical items to read in the Particular Conditions.
Common traps
- The validity period does not cover the whole DNP allowing for extensions — build in headroom.
- On-first-demand wording with no obligation to substantiate a breach makes the instrument close to unconditional.
- The guarantee is issued by a bank the contract does not accept — the risk surfaces only after signature.
Versions: 1999 → 2017 → 2022
- 1999
Governed by Sub-Clause 4.2 with similar security requirements.
- 2017
Clear grounds for a call and links to dates/events were added.
- 2022
The 2022 reprint updated references to the annexed guarantee forms.
Clause FAQ
Which FIDIC books use Sub-Clause 4.2?
The clause applies in Red Book, Yellow Book, Silver Book. Particular Conditions may change the standard risk allocation, so always check the project contract.
Can an unjustified call on the guarantee be stopped?
In theory yes, through injunctive relief, but in practice it is difficult and depends on the law of the place of issue and the instrument’s wording. Under an independent guarantee the bank pays against documents without examining the underlying dispute. The realistic play is preventive: fix an obligation in the Particular Conditions for the Employer to notify and substantiate before approaching the bank.
When must the performance security be returned?
Once the obligations it secures are discharged — typically on issue of the Performance Certificate at the end of the defects period. In practice return is dragged out by reference to minor open items. What works is agreeing the release conditions in the contract up front and keeping a register of rectified defects signed off by the Engineer, so it is not argued at the end.
Glossary terms
Related clauses
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Reference material, not legal advice. Always check your contract and the Particular Conditions.