Rules of Bank Guarantees
Effective from Jan 31 2025 - Jan 30 2025
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Kingdom of Saudi Arabia
Ministry of Finance & National Economy Legal Department
Rules of Bank Guarantees
Pursuant to article 2 (d) and 7 (a) of the Government Procurement Regulations and article (9) of its Implementation Rules, Ministerial Decision No. 17/1486 dated 25-3-1398 and Ministry of Finance & National Economy circular No. 17/5373 dated 25/3/98H, acceptable forms of bank guarantees shall be as follows:
| I. | Letter of bank guarantee from a local bank. | ||
| II. | Letter of bank guarantee from abroad submitted by a local bank | ||
| Pursuant to the Ministry of Finance & National Economy in circular No. 11/M/12407 dated 5-8-1396H and SAMA circular No. 11481 dated 19-8-1396H, the following conditions shall apply to those guarantees: | |||
| 1- | Letters of guarantee must be issued by the head office, not branches, of the foreign bank. | ||
| 2- | Letter of guarantee must contain a commitment to pay the value inside the Kingdom of Saudi Arabia upon first request free of any commission, taxes or expenses whatsoever and notwithstanding any objection from the bidder or the contractor of the government agency. | ||
| 3- | The letter of guarantee shall not be subject to any currency control regulations abroad that may result in delaying payment or non-payment of the total value. | ||
| 4- | If the guarantee is submitted by a foreign bank through a local bank, the local bank shall: | ||
| a) | Confirm the correct signatures of the issuing bank employees on the letter of guarantee. | ||
| b) | Certify that the signing employees are authorized to do so. | ||
| c) | Confirm that the foreign bank is approved by SAMA. The local bank must confirm the foregoing in an official letter attached to the guarantee. | ||
| 5- | Letters of guarantee issued by foreign banks must be in accordance with the forms approved by SAMA | ||
| 6- | Correspondence between the guaranteeing bank and beneficiary should take place through the local bank only. | ||
| 7- | The commission of the local bank for its services should bot exceed 0.5 per thousand of the value of the guarantee if the value is in the neighbourhood of SR 100 million and 0.25 per thousand for higher figures. | ||
| III. | An undertaking by a specialized insurance company approved by SAMA, only in connection with preliminary and final guarantees. | ||
| Pursuant to SAMA circular No. 6082/M/229 dated 18-4-1397H, this kind of guarantee is subject to the following conditions: | |||
| a) | The Insurance Company shall undertake to pay the bidding government agency an amount equal to the value of preliminary guarantee upon first request, notwithstanding any objection by bidder and without a ruling from any court or arbitration body. | ||
| b) | In case of final guarantee, the coverage shall be at least 25% of the contract value. | ||
| Letters of guarantee submitted by insurance companies shall be subject to the same other conditions and procedures applicable to letters of guarantee submitted by foreign banks. | |||
| IV. | All local and foreign banks shall, when they issue the 3 types of bank guarantees, comply with the attached rules and are not allowed to introduce any conditions or forms that differ from the approved forms. Letter of guarantees submitted by foreign banks in English are acceptable, provided that they are submitted in conformity with the approved form and an Arabic translation certified by the local bank is attached to the covering letter of the local bank. | ||