The Governing Law and Judicial Practice of Demand Guarantee in Ethiopia: The Case of Road Construction
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Date
2025-03-01
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Addis Ababa University
Abstract
Ethiopia continues to engage extensively in road construction, significantly contributing to the nation's economy. However, this sector is inherently high-risk due to its financial demands. To mitigate potential contractual risks, it is essential to adopt effective legal framework that will enhance project performance. One such strategy involves the requirement for contractors to submit a bank demand guarantee in road construction contracts, a standard practice not only in Ethiopia but also in various countries.
This demand guarantee, is intended to provide immediate and unconditional payment by the bank should the beneficiary seek compensation due to the non-performance of the contractor. In practice, however, complexities often arise, and timely execution is not guaranteed. Consequently, such guarantees necessitate robust collateral to ensure that banks can fulfill their obligations in the event of the applicant's default. This consideration is particularly important in Ethiopia, where economic and political instability poses a heightened risk of non-payment.
By incorporating both doctrinal and empirical research methodologies this research identified that there is no governing law in this respect and judicial practices surrounding demand guarantees cases are not consistent with the international experience
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Keywords
Demand guarantees, road construction, judicial practices, governing Law, Construction Contracts, non-performance, legal framework, project performance