Performance security is a guarantee the winning bidder gives the buyer to ensure it performs the contract as agreed. It is usually furnished as a Performance Bank Guarantee (PBG) — increasingly in electronic form as an ePBG — for a percentage of the contract value, and is forfeited if the contractor defaults.
After a bidder wins and receives the Acceptance of Contract, it must submit performance security before signing the contract, within a deadline set in the tender. This security protects the buyer against non-performance: if the contractor fails to deliver, delays unreasonably, or breaches the contract, the buyer can invoke the guarantee and recover money without lengthy litigation.
Performance security is typically expressed as a percentage of the contract value. Under GFR 2017 it has generally been in the range of five to ten percent, though the government reduced it in certain periods (for example to three percent during the COVID relief measures) through Office Memoranda. Always read the specific tender and the operative OM for the exact percentage that applies.
The most common instrument is a Performance Bank Guarantee — a bank’s written undertaking to pay the buyer up to the guaranteed amount on demand if the contractor defaults. The guarantee stays valid through the contract period plus a warranty or defect-liability period, so it is not released until obligations, including warranty, are fully discharged.
An ePBG (electronic Performance Bank Guarantee) is the digital version, issued and verified electronically — for example through the SFMS network and integrated into GeM and other portals. It removes the need to physically deliver a paper guarantee and lets the buyer authenticate the guarantee directly with the issuing bank, reducing fraud and processing delay compared to a paper PBG.
Performance security is different from EMD and from a Bid Security Declaration. EMD/BSD secures the bidding stage; performance security secures the execution stage after award. Factor its cost into your pricing, because a bank charges margin money and fees to issue a PBG or ePBG, and that working capital is locked up for the life of the contract plus the warranty period.
BidShakti surfaces the performance-security percentage and whether an ePBG is required as part of the go/no-go, so the post-award capital lock-up is visible before you bid, not after you win. The bid-pack then lists the PBG/ePBG steps and deadline tied to the Acceptance of Contract, helping you arrange the guarantee in time and avoid forfeiting your bid security for a missed submission.
Frequently asked questions
What is performance security in a tender?
It is a guarantee the winning bidder gives to ensure it performs the contract; the buyer can invoke it if the contractor defaults.
What is the difference between PBG and ePBG?
A PBG is a paper Performance Bank Guarantee; an ePBG is its electronic version, issued and verified digitally through banking networks and portals.
What percentage is performance security?
Typically five to ten percent of the contract value under GFR 2017, though it has been reduced in certain periods; check the specific tender.
How is performance security different from EMD?
EMD secures the bidding stage and is refundable; performance security secures contract execution after award and is held through the warranty period.
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