Federal figures checked against the Public Procurement Rules, 2004 (Rules 25 and 39). Provincial rules and individual bidding documents can set different terms — the bidding document for your tender always governs.
The Short Answer
A performance guarantee is security the winning bidder gives the procuring agency after a government contract is awarded — most often an unconditional bank guarantee. If the contractor fails to deliver, the agency can encash it. Under the federal Public Procurement Rules, 2004 it cannot exceed 10% of the contract amount, and the exact figure for any tender is written in its bidding document.
How Much Is It?
Rule 39 of the Public Procurement Rules, 2004 lets a procuring agency require a performance guarantee “where needed and specifically provided for in the bidding documents”, and caps it at ten per cent of the contract amount. In practice many bidding documents ask for a figure at or below that cap. Always use the exact percentage, currency and validity stated in the bidding document for your tender.
Provincial authorities — Punjab PPRA, Sindh SPPRA, Khyber Pakhtunkhwa KPPRA and others — run their own procurement rules. Their figures and procedures can differ from the federal rules, so for a provincial tender read the bidding document rather than assuming the federal limit.
When You Submit It
You submit the performance guarantee only if you win. After the agency accepts your bid, it issues an acceptance letter or notification of award, and you must furnish the guarantee within the period that letter or the bidding document states — before the contract is signed. Treat that deadline seriously: under most bidding documents, failing to provide the guarantee in time lets the agency cancel the award and forfeit your bid security.
Accepted Forms
Bidding documents usually ask for an unconditional, on-demand bank guaranteefrom a scheduled bank in Pakistan, in the agency's format. Some also accept a pay order, demand draft or call deposit receipt. Only the forms listed in your bidding document are acceptable, so check before you go to the bank. Banks typically charge a commission for issuing a guarantee and may ask for a cash margin or collateral, so arrange this facility before you bid.
Performance Guarantee vs Bid Security
The two are often confused. Bid security protects the agency during bidding; a performance guarantee protects it during the contract.
| Bid security | Performance guarantee | |
|---|---|---|
| Who gives it | Every bidder | Only the winning bidder |
| When | With the bid | After award, before signing |
| Federal cap | 5% of bid price (Rule 25) | 10% of contract amount (Rule 39) |
| Protects against | Withdrawing a bid or refusing the award | Failing to perform the contract |
| Returned | To losing bidders after award; to the winner once the performance guarantee is in | After satisfactory completion and any defects-liability period |
Don't confuse either with a mobilization advance guarantee, which some works contracts require if the agency pays you an advance up front. It secures that advance only, and is separate from the performance guarantee.
When It Is Returned or Encashed
A performance guarantee is normally released once the contract is completed to the agency's satisfaction and any defects-liability or warranty period in the contract has ended — so its validity should run until then. If you abandon the work, deliver substandard goods, or otherwise breach the contract, the agency can encash it. Because it is usually unconditional, the bank pays on the agency's demand; disputes are settled afterwards under the contract.
Checklist Before You Bid
- Find the performance guarantee clause in the bidding document: percentage, form, validity and deadline.
- Confirm your bank will issue a guarantee of that size in time, and what margin it will hold.
- Price the bank commission and blocked margin into your bid.
- Check the validity covers completion plus any warranty or defects-liability period.
- Use the agency's guarantee format if one is attached — wording errors can get a guarantee rejected.
New to government bidding? Start with how to apply for government tenders in Pakistan, or get free tender alerts for new tenders in your field.
FAQs
What is a performance guarantee in a tender?
A performance guarantee is security that the winning bidder gives the procuring agency after the contract is awarded, usually as a bank guarantee. If the contractor fails to perform the contract, the agency can encash it as compensation.
How much is the performance guarantee under PPRA rules?
Under Rule 39 of the federal Public Procurement Rules, 2004, a performance guarantee cannot exceed ten per cent of the contract amount. The exact percentage for a given tender is set in its bidding document.
What is the difference between bid security and a performance guarantee?
Bid security is submitted by every bidder with the bid and is capped at five per cent of the bid price under Rule 25. A performance guarantee is submitted only by the winning bidder after award and is capped at ten per cent of the contract amount under Rule 39.
When do I have to submit the performance guarantee?
After the procuring agency accepts your bid and before the contract is signed, within the period stated in the bidding document or acceptance letter. Missing that deadline can cost you the contract.
When is a performance guarantee returned?
It is normally released after the contract is completed to the agency’s satisfaction, and after any defects-liability or warranty period the contract specifies has ended.
Is the performance guarantee required in every tender?
No. Rule 39 applies where a performance guarantee is needed and specifically provided for in the bidding documents. Many goods, works and services tenders require one; check the bidding document for yours.