What is PBG?

What is a PBG?

A Performance Bank Guarantee is a promise by the contractor’s bank to pay the buyer a set amount if the contractor fails to perform the contract. It is the most common form of performance security in Indian government contracts.

Under GFR 2017, performance security is commonly 5–10% of the contract value. Some contracts have used lower rates under government relaxations. The tender gives the exact rate.

How a PBG works

Some buyers also accept other forms of performance security, such as a fixed deposit receipt, an insurance surety bond or online payment, if the tender allows.

• It is submitted after award, usually within a fixed number of days of the LoA
• The buyer sets the format, and often requires the issuing bank to be a scheduled commercial bank
• It must stay valid until a set period after all contract obligations, including warranty, are complete
• If the contractor defaults, the buyer can invoke the guarantee and claim the amount from the bank
• Once obligations are met, the buyer releases the PBG

Tips for bidders

Arrange bank limits for the PBG before you bid, so you can submit it on time if you win.

Use the buyer’s format word for word, as changed wording can lead to rejection. Track the expiry date and extend the PBG when the contract requires it.