Italy: On-Demand Guarantees Under Italian Law

Last Updated: 25 February 2015
Article by Giuseppe Broccoli


19.02.2015 - In mid-big size construction projects (both international and domestic), it is standard practice that the employer asks to the contractor a guarantee for the advance payment received (advance payment bond), for the proper performance of the works (usually known as performance bond) and for the warranty period after the taking over of the works (warranty bond). The contractor will therefore ask (usually) to its own bank the issuance of such guarantees in favour of the employer.

This note takes into consideration the case where an Italian contractor asks the issuance of the bond to an Italian bank and the bond is governed by Italian law.


Generally speaking the employer requests a guarantee pursuant to which it will receive a certain amount of money upon default of the contractor. There are two main types of such guarantees:

  • the so called 'default guarantee' or 'conditional guarantee', which is a bond pursuant to which the guarantor undertakes to pay a certain amount of money to the employer in case of contractor's default. This guarantee is intimately linked to the construction contracts in the sense that the employer, to receive the payment of the guarantee, shall prove the default of the underlying contract and the guarantor will be entitled usually to raise all the objections that the contractor could have raised on the basis of the construction contract. The main feature of a default guarantee is therefore that, if the contractor has valid grounds to refrain from performing the contract (on the basis of the construction contract), the same objections could be raised by the guarantor to refrain from paying the amount stated in the guarantee.

Example of default guarantee:
"The guarantor X, with reference to the construction contract entered into between Employer and Contractor, guarantees the due performance of the works pursuant to all the terms and conditions of the construction contract."

  • the so called 'on-demand bond' or 'unconditional bond' (or even simply 'first demand bond'), which is instead a guarantee, entirely autonomous from the construction contract (even if issued pursuant to a specific undertaking provided by the contract), pursuant to which the employer does not have the obligation and/or duty to prove the default of the contractor in order to receive the payment stated in the guarantee. The employer will be entitled to receive the payment simply 'stating' that the contractor is in default. In said guarantees neither the guarantor nor the contractor will be entitled to raise objections based on the construction contract and this is because such guarantees are 'autonomous and independent' from the underlying contract. With very few exceptions (see below), the guarantor shall have the obligation to pay the amount stated in the guarantee as called by the employer. The on-demand bond, therefore, allows the employer to cover the risk of the contractor's default without the need to start any legal proceeding and without the need to prove the actual default of the contractor.

Example of on-demand guarantee:
"The guarantor, pursuant to the construction contract entered into between Employer and Contractor, undertakes to pay to the Employer the amount of € ___ upon simple request of the Employer, irrevocably and unconditionally, and notwithstanding any objection raised by the Contractor."


In order to ascertain whether the guarantee is an on-demand bond, it is crucial to analyse carefully the entire text of the guarantee and not to limit the analysis to the legal title given to it by the parties (as said before, such guarantee being usually called simply 'advance payment bond', 'performance bond' or 'warranty bond'). As a consequence, if the intention of the parties is to have a proper on-demand guarantee, it will not be sufficient simply to call the bond as 'on-demand guarantee', but it will be crucial to construe the entire text of the guarantee.

There are certain expressions which permit, generally, to identify an on-demand guarantee, such as:

  1. "on first demand";
  2. "without objections" or "unconditionally";
  3. "notwithstanding any objections from the contractor"

They are, if all included in the guarantee, indicative of an on-demand bond.

However, some of the expressions indicated above could, if used individually, create a conditional bond instead of an on-demand bond. For example, the expression "the guarantor shall pay upon first demand" is not considered by Italian courts sufficient to characterise the guarantee as an on-demand bond.


If, on the one side, an on-demand bond is for the employer a great tool to cover the risks arising out of the contractor's default, it can be, on the other side, the source of risks for both the contractor and the employer.

Risks for the contractor

With a truly on-demand bond, the guarantor shall be under the obligation to pay upon simple demand of the employer (i.e. without the need of any proof of the default) and the contractor shall be automatically debted the amount called from the guarantor. It is standard practice, in fact, that the guarantor issues the bond in favour of the employer in exchange of certain credit facilities granted by the bank to the contractor. Given the main feature of the on-demand bond (the payment of which can be obtained by the employer without any proof of the default and the obligation of the bank to honour the payment arises upon simple request from the employer), the risk for the contractor is that the employer will call the bond without having the right or fraudulently (the so called abusive or fraudulent calling).

Example of fraudulent calling:
The employer calls the entire advance payment bond, even in the case where the contractor has already repaid (or partially repaid) the advance payment received at or before the notice to proceed (through the deduction on progress payment). The accounting of the contractor will demonstrate in a straight way that the advance payment has already been repaid.

In such case, the contractor will be entitled to obtain an injunction pursuant to which the competent court will order the guarantor to refrain from paying the amount called, but only in the case the contractor will be in the position to prove (on the basis of documentary evidence) the fraudulent and/or abusive calling of the employer. In the case the court will not issue such restraining order and the bank pays the amount stated in the guarantee, the contractor will have the right to start a legal proceeding against the employer (usually via an international arbitration) and eventually against the guarantor in the limited case in which the latter has not acted with due care and professionalism.

Practical suggestions for the contractor:

  1. Try to insert a clause providing that the employer will be entitled to call the bond only upon presentation of certain documents issued, for instance, by a third independent party who will ascertain the non-fulfilment of the contractual obligations.
  2. Provide, not only in the guarantee but also in the relevant underlying contract, the specific situations when the employer will be entitled to call the bond.
  3. Provide, both in the guarantee and in the underlying contract, a specific procedure for the calling of the bond (for example "the employer will be entitled to call the bond only in the case the contractor has failed to provide its justifications on the asserted default. The employer shall request the payment of the guarantee with written document stating in details the declared defaults").

Risks for the employer:

On the other side, the employer shall be at risk in the case it will call an on-demand bond whenever it is not in good faith and is aware that it is not entitled to receive the payment of the guarantee. In such cases, in fact, the contractor shall be entitled to obtain damages from the employer in case the calling will be found to be fraudulent.

Example of fraudulent calling:
The default of the contractor is a consequence of an act of the employer who has consciously omitted to cooperate with the contractor in the settlement of certain technical issues or has even prevented the contractor from fulfilling the contractual obligations.

Practical suggestions for the employer:

  1. Expressly provide that the bond can be called unconditionally and notwithstanding any objection that the contractor can raise in respect of the construction contract;
  2. Provide a specific clause in the construction contract which will expressly specify that the bond is on-demand, autonomous and independent from the underlying contract and which will provide a specific procedure for the calling of the bond;
  3. Call the bond only in the case the contractor is honestly considered in default and refrain from using the bond as a tool to put some pressure on the contractor.


The drafting of an on-demand guarantee requires particular attention to avoid that it could be in case of dispute characterised as a conditional or default bond and therefore subject to the terms and conditions of the underlying construction contract. The substance will prevail on the legal title given to the guarantee (even in the case in which the title is simply advance payment bond, performance bond or warranty bond). The on-demand guarantee (if properly drafted) will allow the employer to obtain a prompt restoration of its losses arising out of the default of the contractor without the need to start any legal proceeding. It is, however, a tool that, from the contractor's perspective, can be a sensible risk in case of fraudulent calling. It is not unusual, in fact, that an on-demand bond (i.e. the threat of its calling) is improperly used by the employer as a weapon to put some pressure on the contractor.

The present note is based on the article written by Giuseppe Broccoli (and Lauren Adams, Barrister, for English law profiles) which title is " ON-DEMAND BONDS: A REVIEW OF ITALIAN AND ENGLISH DECISIONS ON FRAUDULENT OR ABUSIVE CALLING", published on International Construction Law Review – ICLR [2015].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Giuseppe Broccoli
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.