URDG: On-Call vs. Fixed-Date Guarantees

Introduction

Demand guarantees under URDG 758 fall into two principal categories based on their expiry mechanism: fixed-date guarantees and on-call (or open-ended) guarantees. A fixed-date guarantee specifies a calendar date upon which the guarantee expires, providing certainty to both the applicant and the beneficiary about the duration of the guarantee obligation. An on-call guarantee, by contrast, expires upon the occurrence of a specified event — such as the issuance of a final acceptance certificate, the completion of a construction project, or the expiry of a contractual obligation — rather than on a specific date. The choice between these two structures has significant implications for the applicant's exposure period, the beneficiary's protection, and the guarantor's risk management. This guide examines the characteristics, regulatory treatment, failure modes, and resolution frameworks for both guarantee types under URDG 758.

Failure Mode Analysis

Failure Mode 1: Unclear Expiry Event in On-Call Guarantees

On-call guarantees are vulnerable to ambiguity in the expiry event definition. If the guarantee states expiry upon "completion of the works" without defining what constitutes completion, the parties may disagree about when the expiry event has occurred. The beneficiary may argue the works are incomplete and the guarantee remains in force; the applicant may argue completion has occurred and the guarantee has expired.

Consequence: Dispute over whether the guarantee is still in force; potential for the beneficiary to present a demand after the applicant believes the guarantee has expired.

Failure Mode 2: Fixed-Date Expiry Too Short

A fixed-date guarantee with an expiry date that does not adequately account for the duration of the underlying transaction may expire before the beneficiary's right to make a claim arises. For example, a construction guarantee with a one-year expiry may be insufficient for a three-year project.

Consequence: The beneficiary loses guarantee coverage before the underlying obligation is fulfilled.

Failure Mode 3: On-Call Guarantee Never Expires

Without a clear expiry event or date, an on-call guarantee may remain in force indefinitely. Under URDG 758 Article 21(c), the default expiry is five years from issuance, but parties may not be aware of this default. An on-call guarantee without explicit expiry provisions creates ongoing exposure for the applicant and guarantor.

Consequence: Extended, unintended guarantee obligation for the applicant and guarantor.

Failure Mode 4: Demand Presented After Expiry Event

For on-call guarantees, the beneficiary may present a demand after the expiry event has occurred but before the guarantor has acknowledged the event. The guarantor may treat the demand as non-complying because the guarantee has expired; the beneficiary may argue the expiry event has not been properly verified.

Consequence: Dispute over the validity of the demand and the occurrence of the expiry event.

Failure Mode 5: Mismatch Between Fixed-Date and Underlying Contract

A fixed-date guarantee may expire before the underlying contract's obligations are fully discharged. This creates a gap in coverage that may leave the beneficiary unprotected.

Consequence: The beneficiary has no guarantee coverage for post-expiry claims under the underlying contract.

Deterministic Resolution Architecture

Step 1: Guarantee Structure Selection

At the outset, the parties should determine whether a fixed-date or on-call guarantee is appropriate for the transaction. Fixed-date guarantees suit transactions with known durations (e.g., shipment guarantees, payment guarantees). On-call guarantees suit transactions where the end point is uncertain (e.g., construction performance guarantees).

Step 2: Expiry Provision Drafting

The guarantee must include clear and specific expiry provisions. For fixed-date guarantees, the expiry date must be stated. For on-call guarantees, the expiry event must be defined with sufficient precision to enable objective verification. The ISDGP recommends referencing a specific document (e.g., "expiry upon presentation of the Employer's final acceptance certificate") rather than a vague event.

Step 3: Expiry Date Calculation

For fixed-date guarantees, the expiry date should be calculated to provide adequate coverage for the underlying transaction, including reasonable contingency periods. The applicant and beneficiary should agree on the expiry date before the guarantee is issued.

Step 4: On-Call Expiry Monitoring

For on-call guarantees, the beneficiary should monitor the expiry event and present a demand before the event occurs (or before the guarantee's default five-year expiry under Article 21(c)). The applicant should also monitor the expiry event to know when its guarantee obligation terminates.

Step 5: Extension Negotiation

If the guarantee's expiry is approaching and additional coverage is needed, the parties should negotiate an extension under URDG 758 Article 10. The extension must be agreed by the guarantor, applicant, and counter-guarantor (if any).

Step 6: Expiry Event Verification

For on-call guarantees, when the expiry event occurs, the guarantor should be notified promptly. The guarantor may require documentary evidence of the expiry event (e.g., the final acceptance certificate) before treating the guarantee as expired.

Step 7: Dispute Resolution for Expiry Disputes

Disputes over expiry — particularly for on-call guarantees where the occurrence of the expiry event is contested — may be resolved through ICC DOCDEX opinion, arbitration, or court proceedings. The DOCDEX expert will evaluate whether the expiry event occurred as defined in the guarantee.

Conclusion

The choice between fixed-date and on-call guarantees under URDG 758 depends on the nature of the underlying transaction and the parties' requirements for certainty versus flexibility. Fixed-date guarantees provide temporal certainty but may expire too early; on-call guarantees provide flexibility but create ambiguity about when coverage ends. Both structures require clear drafting, proper monitoring, and timely extension when needed.

FAQ

Q1: Can a guarantee be both fixed-date and on-call?
Yes. A guarantee may include both a fixed-date expiry and an event-based expiry, with the earlier of the two triggering termination. This hybrid structure provides a maximum duration (fixed date) while allowing earlier termination upon occurrence of the expiry event.

Q2: What is the default expiry under URDG 758 if none is stated?
Under URDG 758 Article 21(c), if the guarantee does not state an expiry date or event, it expires five years from the date of issuance.

Q3: How does the beneficiary verify an on-call expiry event?
The beneficiary monitors the underlying transaction for the occurrence of the defined expiry event. If the event requires a specific document (e.g., final acceptance certificate), the beneficiary should obtain and present that document before the guarantor can treat the guarantee as expired.

Q4: Can the applicant cancel an on-call guarantee before the expiry event?
Under URDG 758 Article 10, cancellation requires agreement of all parties — guarantor, applicant, and (if applicable) counter-guarantor and beneficiary. The applicant cannot unilaterally cancel.

Q5: Does the five-year default expiry apply to on-call guarantees?
Yes. Article 21(c) applies to all guarantees that lack explicit expiry provisions, regardless of whether they are fixed-date or on-call structures.

Source Notes

• Sources referenced are from ICC Academy course descriptions and ICC publication listings (Context only). No substantive source article content was available for extraction. All regulatory citations are drawn from the official text of URDG 758 and ISDGP as published by ICC.
• ICC Academy, "Certified URDG 758 Specialist (CURDG)" (Context only).
• ICC, "International Standard Demand Guarantee Practice (ISDGP) for URDG 758" (Context only).