Para 6.1.2 — NONCONSULT_MANUAL

2. Form of Security: Performance security may be furnished in the form of an Insurance Surety Bond65, account payee demand draft from a commercial bank, bank guarantee (including e-bank guarantee66) issued/confirmed67 from any of the scheduled banks in India, or online payment in an acceptable form, safeguarding the purchaser's interest.

3. In case of a JV, the BG towards performance security shall be provided by all partners in proportion to their participation in the project. In the case of GTE tenders, the performance security should be in the same currency as the contract and must conform to the Uniform

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 documents64. 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.

Rules for Demand Guarantees (URDG 758) – an international convention regulating international securities68. 4. Securities in the existing contracts in form of bank guarantee may be permitted by Procuring Entity to be replaced by the contractors to Insurance Surety Bonds or e-Bank Guarantee. Adequate safeguards such as such requiring prior submission of new forms of security before releasing the original forms of security shall be ensured. (For further details on Insurance Surety Bond and e-bank guarantee, please refer to para 6.1.3 and 6.1.4 of Manual for Procurement of Goods, 2024) 5. Submission of Performance Security may not be insisted upon in lower valued contracts (say upto Rupees 50 (Fifty) lakh). 6. Procuring Entity may exempt the following entities (on their specific requests or otherwise) from submission of Performance Security: a) 69 Govt. Ministries, Departments, Attached and Subordinate Offices, Autonomous bodies, b) OEM in whose favour PAC, in tenders issued against PAC. 7. Performance Security is to be furnished by a specified date (generally 14 (fourteen) to 28 (twenty-eight) days after notification of the award, depending on the amount) and it should remain valid for a period of 60 (sixty, or any other period mentioned in the tender Documents) days beyond the date of completion of all contractual obligations of the contractor, including warranty obligations. 8. The performance security will be forfeited and credited to the procuring entity’s account in the event of a breach of contract by the contractor. It should be refunded to the contractor without interest, after he duly performs and completes the contract in all respects but not later than 60(sixty) days of completion of all such obligations including the warranty under the contract. Return of Bid/ Performance Securities should be monitored by the senior officers and delays should be avoided. If feasible, the details of these securities may be listed in the e-Procurement Portal/ website of the Procuring entity, to make the process transparent and visible. 9. In the case of service contracts spanning over multiple number of the years, care needs to be taken to decide on the amount of performance security being sought along with the duration. It has been observed that procuring entities retain the performance security over the complete service contract period which may be of 5-7 years or more. This practice puts the service provider in a difficult situation as they have to block a substantial amount of their working capital as security for the entire duration of the contract. In such cases the following is suggested: a) The right quantum of performance security has to strike a balance between protecting the procuring entity's interest in case of default in performance vs. avoiding increase in tendered price and /or reduced competition. If the security is low, the procuring entity may be adversely affected if and when default occurs. If it is high, the extra financial

Chapter 6: Forms of Securities, Prices, Payment Terms and Price Variations cost of furnishing such security will be factored in by bidders when quoting prices & hence the cost may increase. b) Sufficient flexibility is already available in the GFR to design the performance security for procurement of services, both value and duration, duly considering the market conditions and commercial practice for the particular kind of service. c) Procuring entities may consider to proportionately keep reducing performance security in proportion to the balance service period, wherever feasible. Wherever, it is decided to take lower or proportionally reducing PS, tender conditions may be suitably modified for the future cases.