What Are the Uniform Rules for Demand Guarantees (URDG)?

The Uniform Rules for Demand Guarantees (URDG) refers to a set of international guidelines produced by the International Chamber of Commerce (ICC) and adopted in 1991. These guidelines set forth generally agreed-upon rules governing securing payments and meeting performance guarantees in contracts among global trading partners.

In general, the URDG guidelines outline the rights and obligations of parties under demand guarantees. A demand guarantee is a type of protection that one party in a transaction can impose on another party in the event that the second party does not perform according to predefined specifications.

According to the ICC, many bankers, traders, and industry associations recognize and accept the URDG because it attempts to balance the interests of all parties involved in various types of international contracts.

Key Takeaways

  • The Uniform Rules For Demand Guarantees (URDG) refers to a set of international guidelines produced by the International Chamber of Commerce (ICC) and adopted in 1991.
  • These guidelines set forth generally agreed-upon rules governing securing payments and meeting performance guarantees in contracts among global trading partners.
  • Bankers, traders, and industry associations recognize and accept the URDG because it attempts to balance the interests of all parties involved in various types of international contracts.

Both the World Bank and the United Nations Commission on International Trade Law (UNCITRAL) each have adopted the URDG standard.

Understanding the Uniform Rules for Demand Guarantees (URDG)

The URDG covers billions of dollars of contract guarantees in a number of industries, including banking and construction. 

Most commonly, the URDG covers so-called demand guarantees, which are specific rights or countermeasures one party can impose on another party if the second party does not perform according to contract specifications. 

However, the UDRG also applies to agreements requiring the decision of an arbitrator, as well as some contracts that involve slightly more complex agreements, such as situations dealing with the default of one of the parties.

The URDG works in concert with other ICC rules, such as the so-called Uniform Customs and Practice for Documentary Credits (UCP 600) as well as the Uniform Rules for Bank Payment Obligations. According to the ICC, voluntarily abiding by the URDG and its related rules helps improve the speed and volume of trade, and avoid disputes without having to go to court. 

The publication "ICC Uniform Rules for Demand Guarantees Including Model Forms" is considered to be the comprehensive guide for understanding the URDG guidelines. It includes a series of ready-to-use templates and forms, rules for handling extended payments, and various checklists and best practices.

The most significant URDG update in the past three decades occurred in 2010, with the update referred to as URDG 758. This update to the original URDG rules attempted to clarify several common issues, such as those involving payment contingencies. It also provided guidance regarding the handling of specific electronic documents and fund transfers, and provided additional model forms.

The ICC worked on writing URDG 758 for more than two years prior to its release, taking into account feedback from various groups of constituents (as well as roughly 600 individual comments). The new rules attempt to reduce conflicts and contract rejections. According to the ICC, the rules included in URDG 758 are intended to bring financial stability to international markets, adds new definitions and rules interpretations, and provides guidance for the treatment of “contentious practices.”