Issues surrounding performance bonds

Issues surroundings performance bonds

What is a performance bond?

A bond is a written promise to pay money or do an action should certain circumstances occur or a certain time elapses.

1. Obtain a bond

BANK 3. Pay the owner breach of contract

CONTRACTOR 2. Submit to the owner to ensure the contractor’s performance

THE OWNER

This bond is usually unconditional, it allows the owner to claim the money without having to prove the breach of contract of the contractor.

What if the bank refuses to pay under the bond?

In some other countries, the owner may file a lawsuit against the bank and easily get the payment, since this is a clear breach of the bank’s duty.

In Vietnam, it will be as follow:

Summon the contractor to be a related party File a lawsuit against the bank

THE OWNER COURT File an independent claim against the owner

CONTRACTOR

The court will need to settle the dispute between the owner and contractor before granting the payment under the bond.

The unconditional bond completely loses its “unconditional” status in Vietnam, the owner still has to prove the breach and wait for the conclusion of the court.

Solutions

Ensuring that the bank is reputable.

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