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Para 6.1.2 - Performance Security | KartavyaDesk

Consultancy Manual

Original Rule Text

6.1.2 Performance Security (Rule 171 of GFR 2017) 1. To ensure due performance of the contract, performance security (or Performance Bank Guarantee (PBG) or Security Deposit (SD)) is to be obtained from the successful bidder awarded the contract. Performance security should be for an amount of three (3) to five (5) per cent (3 to 10% for Works) of the contract value, as specified in the tender documents63. The procuring Entity may stipulate an upper ceiling for the Performance Security amount, in larger tenders, so as not to restrict competition. For an illustrative example, the ceiling can be Rs 75 Lakhs for tenders upto Rs 50 Crores and Rs 3 Crore for tenders above Rs 50 Cr but below Rs 300 Cr. For tenders of higher value than this, the Procuring Entity may decide the amount of Performance Security (but not less than Rs 3 Cr mentioned above). However, Procuring Entities are free to decide their own quantum for performance security, or dispense with it, with the approval of Competent authority and finance concurrence, based on their perception of performance risks vis-a vis need for competition.

What This Means

Para 6.1.2 of the Manual for Procurement of Consultancy Services, referencing Rule 171 of the General Financial Rules (GFR) 2017, deals with Performance Security. Think of it as a safety net for the government. When the government hires a consultant, it wants to be sure they'll do the job properly. This rule says that the winning consultant must provide a Performance Security, which could be a bank guarantee or a security deposit. This security acts as a guarantee that the consultant will fulfill their contractual obligations. If they don't, the government can use this security to cover any losses. This rule applies to all consultancy contracts and affects both the government departments doing the procurement and the consulting firms bidding for the work.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

  • •Performance Security (PBG or SD) is mandatory for consultancy contracts.
  • •The amount is typically 3-5% of the contract value (3-10% for works).
  • •Procuring entities can set upper limits on the Performance Security amount, especially for large tenders, to encourage competition.
  • •Departments can decide their own quantum or dispense with it with approval from competent authority and finance concurrence, based on risk assessment and competition needs.
  • •The Performance Security ensures the consultant fulfills the contract terms.

Practical Example

The Ministry of Rural Development is hiring a consultant, M/s Gram Vikas Consultants, for a project worth Rs 60 Crores. According to Para 6.1.2, they decide to set the Performance Security at 5% of the contract value. However, they also stipulate an upper ceiling of Rs 3 Crores, as per the guidelines. Therefore, M/s Gram Vikas Consultants needs to provide a Performance Bank Guarantee (PBG) of Rs 3 Crores (since 5% of 60 Crores is Rs 3 Crores, which is the ceiling). This PBG ensures that M/s Gram Vikas Consultants will complete the project as per the contract terms. If they fail to do so, the Ministry can invoke the PBG to recover any losses.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

What happens to the Performance Security after the contract is completed?▼
The Performance Security is returned to the consultant after the successful completion of the contract and after all contractual obligations have been met, as per the terms of the contract.
Can the Performance Security be in the form of cash?▼
While the rule mentions Performance Security, Performance Bank Guarantee (PBG), or Security Deposit (SD), the specific acceptable forms are usually detailed in the tender documents. Cash is generally not preferred; a PBG is more common.
What if the consultant fails to provide the Performance Security?▼
Failure to provide the Performance Security within the stipulated timeframe can lead to the cancellation of the contract award and potential blacklisting of the consultant.
Is the Performance Security applicable to all types of consultancy contracts?▼
Yes, generally Performance Security is applicable to all types of consultancy contracts unless specifically exempted by the procuring entity with proper justification and approvals.
What is the difference between Performance Security and Earnest Money Deposit (EMD)?▼
Earnest Money Deposit (EMD) is submitted along with the bid to show the bidder's seriousness. Performance Security is submitted by the *successful* bidder *after* being awarded the contract, to guarantee contract performance.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Test Your Knowledge

Question 1 of 3

According to Para 6.1.2 of the Manual for Procurement of Consultancy Services, what is the typical range for the Performance Security amount as a percentage of the contract value?

Related Rules

Para 8Manual for Procurement of Consultancy Services, 2025 - Para 8 - Chapter 10 - Annexure 18Para 9Manual for Procurement of Consultancy Services, 2025 - Para 9 - Chapter 10 - Annexure 18Para 1.10.2Manual for Procurement of Consultancy Services, 2025 - Para 1.10.2 - Chapter 1Para 1.11Manual for Procurement of Consultancy Services, 2025 - Para 1.11 - Chapter 1Para 1.13Manual for Procurement of Consultancy Services, 2025 - Para 1.13 - Chapter 1

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