Performance Security

The Performance Security provides the Employer with a readily accessible cash reserve that can
be called on in the event that the Contractor fails to fulfil his obligations under the Contract.
An institution such as a bank or insurance company guarantees availability of the money.
Therefore it is independent of the Contractors cash reserves.
The most common reason for calling in a Performance Security is;
to have a safeguard against insolvency of the contracting company. For this reason a
Performance Security is generally more important in longer-term contracts. Although the
Contractors financial stability is assessed as part of the bid evaluation it can, however,
deteriorate over a period of time.
Normally, Performance Security will be required in the amount of 5% of the Contract Price
(depending on the level of risk and type of security offered).
An unconditional bank guarantee or a performance bond is normally required although there are
several other options available.
The bidding documents must state that the Performance Security must be issued by a reputed
bank or other financial institution acceptable to the Employer.