A Performance Bank Guarantee (PBG) secures the delivery of equipment and materials under a supply contract. The supplier arranges this guarantee in favour of the buyer. It assures the buyer that the supplier will deliver goods in line with contract terms. If the supplier defaults, the bank pays compensation up to the guaranteed amount.

Purpose and Function

The guarantee protects buyers against supplier non-performance. It discourages late delivery, poor quality, or failure to meet specifications. If the supplier breaches obligations, the buyer submits a claim to the bank. The guarantee provides financial cover to source replacement goods or recover losses. Buyers gain confidence to enter large procurement contracts, while suppliers strengthen credibility with secured performance backing.

Key Provisions

The guarantee identifies the supplier as applicant, the buyer as beneficiary, and the bank as guarantor. It sets the guarantee amount, usually 5–20% of the contract value. The validity period extends until final delivery, inspection, and acceptance of the goods. Claim conditions are often simple, requiring only a written demand from the buyer. Most guarantees are irrevocable and unconditional, ensuring swift compensation without disputes.

Practical Considerations

Buyers must confirm that the guarantee complies with ICC URDG 758 or local banking laws. Suppliers should work with reputable banks to enhance trust. Banks may request collateral, deposits, or credit lines before issuing the guarantee. Buyers should align the guarantee’s expiry with inspection and warranty periods. Once obligations finish and goods are accepted, the buyer must return the guarantee to the bank. A carefully drafted guarantee ensures protection for buyers and commercial credibility for suppliers.

For your more information, please take a look at the following documents:

Corporate Performance Guarantee

Reference:

1. International Chamber of Commerce (ICC)