Performance Bond

Performance Bond

Global trade can be financed with a ‘Performance Bond (PB)/Performance Guarantee Bond (PG)/ Bid Bond/Surety Bond’, which is issued on behalf of the supplier/seller/ exporter, and in favor of the buyer. The buyer can impose any penalty on the seller in case of a default /nonperformance according to terms outlined in the contract.

In the form of a ‘surety bond’, a performance bond is a tripartite contract(issuer, principal and the oblige) which brings financial guarantees usually offered by insurance companies to ensure the completion of the project in question even though the executor has been unable to deliver.

The issuer of a surety bond, takes the guarantee of the principal (who becomes the guarantor) to give the enforced promise to the obliged (the project owner who is expecting delivery by the issuer).

Apply For Performance Bond

Relevance of Performance Bond .

The description of the involved parties is as follows

• Oblige: beneficiary of the surety guarantee; usually the owner in charge of the a project.

• Surety: is the carrier guaranteeing performance of the contract through a surety bond.

• Principal: contractor performing the contract and usually paying for the bond.

A performance bond is almost always issued in conjunction with a payment bond, which guarantees that all vendors, suppliers and subcontractors that work on a project will be paid.

The fee for a performance/payment bond usually is approximately 0.5% to 5% of the total contract amount. The bigger the project, the percentage is towards the lower limit.

The requirement is sent to us by the supplier (Client -A). The letter has to be supported by a duly filled up invoice or a MOU /contract between the supplier and the buyer (Client -B). It gives a tentative valuation of the deal being undertaken.

A formal approval from our side requires a due diligence to be carried out about the genuineness of the proposed transaction. We charge a fee for the activity (usually 20% of the proposed deal).

We draft a service agreement between Client-A and ourselves

We proceed to activate the PB/PG with the relevant documents shared by Client – A, in 2 banking days from a well rated Bank, normally a European one.

Performance Bond (PB) is required in case real estate deals. The buyer has to be given the performance bond in assurance of the construction to be completed in a certain period as mutually agreed and put in a TOR.

Performance Guarantee (PG) is required in case of large scale transaction of goods to be provided to the buyer. In case of a PG, a Letter of Credit (LC- MT700) also gets issued by the buyer to the seller.

An amount of working capital is kept as guarantee which is why the Bond is difficult to be secured by individual sellers. Our Services is meant to provide this facility to the seller, who is our client for the same process.

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