Rule 171 - Performance Security | KartavyaDesk
Original Rule Text
Non Consultancy Services, should be for an amount of three to five per cent (3-5%)]37 . of the value of the contract as specified in the bid documents. Performance Security may be furnished in the form of [Insurance Surety Bond]38 Account Payee Demand Draft, Fixed Deposit Receipt from a Commercial bank, Bank Guarantee [including e-Bank Guarantee]39 from a Commercial bank or online payment in an acceptable form safeguarding the purchaser's interest in all respects. (ii) Performance Security should remain valid for a period of sixty days beyond the date of completion of all contractual obligations of the supplier including warranty obligations. (iii) Bid security should be refunded to the successful bidder on receipt of Performance Security.
What This Means
Rule 171 of the General Financial Rules (GFR) 2017 deals with 'Performance Security' for non-consultancy service contracts. Think of it as a safety net for the government. When the government hires someone to do a job (like supplying goods or providing services, but *not* consultancy), they need assurance that the contractor will actually deliver as promised. This rule says the contractor needs to provide a 'Performance Security,' which is a sum of money (usually 3-5% of the contract value) that the government can claim if the contractor fails to meet their obligations. It's like a deposit to ensure good performance.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- •Performance Security is required for non-consultancy service contracts.
- •The amount of Performance Security should be between 3-5% of the contract value.
- •Acceptable forms of Performance Security include Demand Drafts, Fixed Deposit Receipts, Bank Guarantees, and Insurance Surety Bonds.
- •The Performance Security must be valid for 60 days beyond the completion of all contractual obligations, including warranty periods.
- •Bid security is refunded to the successful bidder upon receipt of the Performance Security.
Practical Example
The Ministry of Textiles awards a contract to 'WeaveWell Industries' for supplying 10,000 meters of specialized fabric for ₹50 Lakhs. As per Rule 171, WeaveWell Industries needs to provide Performance Security. The Ministry decides on 5% of the contract value, which amounts to ₹2.5 Lakhs. WeaveWell provides a Bank Guarantee from State Bank of India for ₹2.5 Lakhs, valid for one year (covering the supply period plus 60 days for warranty). If WeaveWell fails to deliver the fabric as per the contract specifications, the Ministry can invoke the Bank Guarantee to recover the 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?▼
Can the Performance Security be forfeited?▼
Is Performance Security required for all government contracts?▼
What is the difference between Bid Security and Performance Security?▼
Can the procuring entity demand more than 5% as Performance Security?▼
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
As per Rule 171 of GFR 2017, what is the permissible range for the amount of Performance Security required for non-consultancy service contracts, expressed as a percentage of the contract value?
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