Para 6.1.2 - Performance Security | KartavyaDesk

Original Rule Text

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

What This Means

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

Key Points

• •Performance Security acts as a guarantee against contractor default.
• •The Procuring Entity can allow contractors to replace bank guarantees with Insurance Surety Bonds or e-Bank Guarantees.
• •Performance Security may not be required for lower-value contracts (e.g., up to ₹50 lakh).
• •Government entities and Original Equipment Manufacturers (OEMs) under Proprietary Article Certificate (PAC) may be exempt from submitting Performance Security.
• •The Performance Security should be returned to the contractor within 60 days of completing all contractual obligations, including warranty.

Practical Example

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

Frequently Asked Questions

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