Performance Bond

1. What is a Performance Bond?
  A Performance Bond is a form of guarantee to be submitted by the contractor who obtains a contract from the Government, which may be held by the Government to protect its interest and to ensure that the contractor perform all obligations under a contract.
   
2. Is a performance bond required for all contracts or contracts worth more than RM50,000 only?
  Performance bond are required for a contract worth more than RM200,000.00.
   
3. Are maintenance contracts valued at under RM50, 000 per year excluded from any guarantee or performance bond?
  Companies are not required to submit performance bonds for maintenance contracts valued at less than RM200, 000. If the contractor / company fails to perform its obligations under the contract, a report should be made to the Ministry of Finance / Central Contractors Service for disciplinary actions.
   
4. A contract has been made with a supplier who is registered but no performance bond imposed. If this registered supplier is not providing a satisfactory service, what actions should be taken?
  The supplier shall be given a reminder and if the service is still not satisfactory a warning letter is issued. If there is still no progress, the contract shall be terminated. Report is to be submitted to the Ministry of Finance for further action.
   
5. What are the acceptable forms of performance bond for Government contracts?
  Performance bond may be given in the following form:
  (a) Bank Guarantee issued by banks licensed under the Banking and Financial Institutions Act 1989 which operates in Malaysia; or
  (b) Insurance guarantee issued by insurance companies licensed under the Insurance Act 1996 which operates in Malaysia; or
  (c) Finance Company guarantee issued by finance companies licensed under the Banking and Financial Institutions Act 1989 which operates in Malaysia; or
  (d) Bank Guarantee issued by banks licensed under the Islamic Banking Act 1983 which operates in Malaysia; or
  (e) Takaful Guarantee issued by a takaful operator registered under the Takaful Act 984 which operates in Malaysia; or
  (f) Guarantee issued by the Infrastructure Development Bank Malaysia Ltd. (BPIMB); or
  (g) Performance Guarantee Fund (for works only).
     
6. What are the rates of performance bonds?
  Performance bond rates are as follows:
  (a) 2.5% of the contract value for supply/services contract worth RM200,000.00 to RM500,000.00.
  (b) 5% of the contract value for supply/services contract exceeding RM500, 000.
  (c) For supply/services timed contract effective for a period of two (2) years or more, the percentage and amount of performance bond is calculated according to the estimated contract value per year. However, the performance bond submitted by the contractor shall cover the entire timed contract period.
  (d) 5% of the contract value for works contract valued at more than RM200, 000.
     
7. How long is the validity period of the performance bond?
  The validity period of performance bonds are as follows:
  (a) Works Procurement
    Twelve (12) months after the completion of defect liability period.
  (b) Supplies Procurement
    Twelve (12) months after the last delivery or expiry date of contract whichever is later.
  (c) Service Procurement
    Twelve (12) months after the contract expires.
     
8. As a substitute for performance bond, can a corporate guarantee be accepted for government procurement?
  No. Refer to the performance bond forms above.
     
9. MSN Construction Company contractor has chosen for a project to build a school in a district worth RM10 million. What is the applicable rate for the performance bond?
  The performance bond charged rate is 5% (rates for all types of works more than RM200,000.00).