FIDIC glossary · Payments
Performance Security
Performance Security
In short
A bank guarantee/security provided by the Contractor as a performance guarantee (Sub-Clause 4.2).
What is a Performance Security?
Performance Security is the security the Contractor provides to the Employer under Sub-Clause 4.2 for the proper performance of the Contract. Typically a bank guarantee for 5–10% of the Accepted Contract Amount; the exact figure and form are set in the Contract Data.
Almost everything about this instrument turns on one characteristic: whether the guarantee is on demand or conditional. An on-demand guarantee is paid by the bank on a formal call from the Employer, without proof of breach — the bank checks the documents against the terms of the guarantee, not the merits of the dispute. For the Contractor that means the money leaves before anyone establishes who was right.
Hence the practical points. The wording of the demand should be as narrow as possible. The validity period must cover through to the Performance Certificate with a margin, without being open-ended. The Employer must return the security within 21 days of issuing the Performance Certificate — a deadline that is routinely missed and worth chasing.
Check separately whether a local bank will issue the required form: on MDB projects the form comes from the development bank and does not always match what local banks are used to.
Where it sits in the contract
Related terms
Need this read against your own contract?
This explains how the mechanism works in the standard form. How it works in your contract, after the Particular Conditions, is a separate question.
Talk to an expert →A reference explanation of the FIDIC standard conditions. Not legal advice, and not a reproduction of the FIDIC books.