What Does Uniform Rules for Demand Guarantees Mean?

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

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

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

Understanding URDG

Uniform Rules For Demand Guarantees (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, or 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 require 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, or UCP 600, as well as the ICC Uniform Rules for Bank Payment Obligations. Together the ICC rules attempt to set common standards and avoid mistrust and confusion. The ICC claims that 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 the go-to guide for 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 Latest URDG Update

The most significant URDG update in roughly the past two decades occurred in 2010, with so-called URDG 758. This update to the original URDG rules attempted to clarify several common issues such as those involving payment contingencies, provide guidance regarding the handling of specific electronic documents and fund transfers, and provide additional model forms. 

The ICC worked on 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 most recent rules help bring financial stability to international markets. The ICC says URDG 758 adds new definitions and rules interpretations, guidance for the treatment of “contentious practices.”