Five practical tips for guarantees that are effective and accepted by banks and counterparties.
1) ICC rules: URDG 758 or ISP98
- Always state the applicable ruleset in the guarantee text.
- URDG 758 for demand guarantees; ISP98 for SBLCs.
- Align the text with the underlying contract.
2) Measurable demand conditions
- Use objective triggers (date, KPI, certificate).
- Avoid vague wording or non-documentary conditions.
- Specify the required documents and format.
Recommended minimum documents
- Signed statement of default.
- KPI/test evidence or acceptance report.
- Contract copy + clause reference.
3) Expiry and extensions
- Use either a fixed date or an expiry event, not both.
- Extension clauses with clear notice periods.
- Align last presentation date with logistics.
4) Governing law and jurisdiction
- Choose a jurisdiction acceptable to both parties.
- Consider ICC/LCIA arbitration for international projects.
- Ensure consistency with the main contract.
5) Issuer and confirmation
- Ratings and jurisdiction suitable for acceptability.
- Cost/fee matrix before issuance.
- Optional confirmation for bank/country risk.
Costly mistakes
- Ruleset not stated.
- Non-documentary conditions.
- Expiry not aligned with the contract.
- Issuer not acceptable to the beneficiary.