A Performance Guarantee is a way of security in favour of a nominated beneficiary (employer) to complete the project undertaken and that should the contractor fail to do so the nominated beneficiary will be reimbursed for its financial losses.
A Performance Guarantee is issued by a financial institution registered with its relevant financial governing body to a nominated beneficiary on behalf of the contractor. A guarantee is issued for the full and due performance of the works by the contractor as set out in the contract.
Performance Guarantees are issued to assist the employer that should the relevant contractor breach the signed contract, and an employer occurs financials losses that they will be reimbursed for the default amount up to the value of the guarantee.
In other words, should the contractor fail to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary losses up to the amount of the performance bond.
