Performance bank guarantees in Bulgaria: calls, unjustified demands and how to protect yourself

Iva Petkova, attorney · Published 2 November 2026 · 5 min

A performance bank guarantee is a standard requirement in Bulgarian construction and infrastructure contracts and in public procurement. It gives the employer quick access to money, but also leverage over the contractor. We explain how it works, when it can be called, and what to do if a demand is unjustified.

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A performance guarantee secures the employer that the contractor will perform, and an advance payment guarantee that the advance will be repaid or used. In practice a bank guarantee often costs the contractor more than a contractual penalty: on a call the employer gets the money at once, while the contractor has to recover it through the courts as the bank seeks reimbursement from him. The battle is therefore fought in three places: in the wording of the guarantee, in the contract, and in the first days after a demand for payment.

How a bank guarantee works

By a bank guarantee, the bank undertakes in writing to pay the named person a sum of money in accordance with the conditions set out in the guarantee (Art. 442 of the Commerce Act). The bank's obligation is its own obligation to the beneficiary and is defined by the guarantee's terms. The bank checks whether the demand meets those terms: expiry, amount, form, required documents and statements. Where the guarantee is "unconditional and irrevocable" and payable "on first written demand", the bank usually does not assess whether the contractor really breached the contract.

If the guarantee refers to the ICC Uniform Rules for Demand Guarantees (URDG 758), those rules govern the requirements of a demand and the time the bank has to examine it. A contractor should therefore read not only the contract but the guarantee text itself before it is issued.

Guarantees under public contracts

A contracting authority may require guarantees for performance of the contract and for advance payments (Art. 111(1) of the Public Procurement Act). A performance guarantee may not exceed 10 per cent of the contract value and may also be required for an amendment adding supplies, services or works (Art. 111(2)). An advance payment guarantee equals the advance and is released within three working days after the advance is repaid or used (Art. 111(3)).

• The contractor chooses the form: cash, a bank guarantee, or insurance that unconditionally and irrevocably secures performance (Art. 111(5) and (8)).
• Insurance is allowed only where the guarantee is up to BGN 500,000 (EUR 255,645.94) (Art. 111(7)).
• The guarantee may be provided in the contractor's name at the expense of a third party, and in a consortium any member may be the applicant (Art. 111(6) and (9)).
• The conditions for retaining and releasing the guarantee are set in the contract, and where the contract is performed in stages it must provide for partial release; where warranty maintenance is included, the part of the guarantee covering it is specified (Art. 111(10) and (11)).

The last two requirements matter for the contractor: if the contract does not provide for partial release, the whole amount stays blocked until the end, and unclear retention clauses are the most common cause of disputes.

The demand for payment

A demand must match the terms of the guarantee exactly: made by the beneficiary, within the validity period, for an amount within the guarantee, and with the documents or statements the guarantee requires, such as a declaration that the contractor has breached the contract, describing the breach. A non-complying demand can and should be rejected by the bank.

For the employer, this means the demand must be prepared carefully and before the guarantee expires. For the contractor, it means the first check is whether the demand complies with the guarantee at all, and if not, the bank should be notified at once.

When a call is unjustified

If the employer calls the guarantee although the contractor did not breach the contract, or for more than is due, the contractor can seek repayment through the courts. The grounds and evidence lie in the contract: whether there was a breach, whether it was the contractor's fault, and whether the delay was caused by the employer, for example through missing permits, drawings or payments.

Interim measures can be sought before the claim is filed, in which case the court sets a deadline of no more than one month for filing it, or while the case is pending (Arts 389 and 390(1) and (3) of the Civil Procedure Code). They are granted where without them the judgment could not be enforced or would be hard to enforce, and the claim is backed by convincing written evidence or the claimant gives security (Art. 391(1)). Besides attachment and charges, the court may order other suitable measures (Art. 397(1)(3)). Whether, and which, measure can stop payment under an independent bank guarantee is a matter of court practice and of the specific facts, so the application must be prepared quickly and with very good evidence.

What to do straight after a demand for payment

1. Ask the bank for a copy of the demand and compare it with the guarantee: expiry, amount, signatures, required statements and documents.
2. Notify the bank and the beneficiary in writing of any discrepancy.
3. Gather evidence of performance and of the reasons for any delay: protocols, correspondence, requests to the employer.
4. Assess with a lawyer whether there are grounds for interim measures, and prepare the statement of claim.
5. Check the contract for clauses on partial release, replacement of the guarantee and penalties that may be set off.

How to protect yourself when negotiating

• require the guarantee to call for a written statement describing the specific breach;
• agree that the guarantee reduces as the works progress, with partial release by stages;
• agree a short validity period and a clear release date;
• separate the performance guarantee from the warranty period guarantee;
• provide that penalties and damages are not claimed twice, once through the guarantee and again under the contract.

Where a lawyer changes the outcome

• in negotiation: the wording of the guarantee and the call provisions in the contract;
• on a demand for payment: a quick assessment of whether the call is unjustified and what measures are available;
• in court: interim relief and a claim to recover an unjustly drawn amount;
• in public contracts: timely release of the guarantees.

The team at Petkova & Minkov Law Firm includes lawyers with experience of construction and infrastructure contracts, public procurement and banking law. We work in Bulgarian, English, Russian and German.

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