Performance Guarantee

A performance guarantee (also called a performance bond) is submitted by the successful bidder after contract award — usually 5% to 10% of the contract value — as security that the contractor will fulfil the contract's terms.

If the contractor fails to perform (e.g. abandons the work, delivers substandard goods, or breaches the contract), the procuring agency can encash the performance guarantee as compensation. It is normally released back to the contractor after the contract is satisfactorily completed and the defects-liability/warranty period (if any) has expired.