Chapter 3 Performance Bond
The amount of performance bond, which may be either a fixed amount or a fixed proportion of the contract amount, shall be determined by the entity in the tender documentation.
The fixed sum referred to in the preceding paragraph shall not, in principle, exceed 10% of the budget amount or the estimated total procurement value; the fixed proportion shall not, in principle, exceed 10% of the contract amount.
For procurement in which the award of contract is based on unit price, the performance bond shall be a fixed sum.
Where there is an increase or decrease in contract amount during the contract performance period, the amount of performance bond shall be adjusted according to the proportion of such increase or decrease.
Where a tenderer deposits a performance bond in the form of an irrevocable standby letter of credit issued or confirmed by a bank, bank’s written joint and several guarantee or insurer’s insurance policy of joint and several guarantee, unless otherwise prescribed by the tender documentation, the validity period of such instruments shall be 90 days longer than the time-limit for final construction, supply or installation prescribed in the contract.
Where a supplier fails to perform the contract within the time-limit prescribed in the contract, or that inspection and acceptance may not be accomplished within the validity period referred to in the preceding paragraph due to causes attributable to the supplier, the validity period of performance bond shall be extended according to the duration of such delay.
The time-limit for depositing a performance bond shall be reasonably prescribed by an entity in the tender documentation, upon considering the characteristics and actual needs of the procurement. For procurement above the threshold for supervision, a reasonable time-limit of 14 days or more shall be prescribed.
Where the performance bond deposited by a supplier is beyond the required time-limit, or at an insufficient amount or inconsistent with the required procedure or format, it shall be rejected. However, under such circumstances that it can be rectified, the entity shall demand the supplier to make rectification within a specified period; if the supplier fails to rectify within the specified period, its performance bond shall be rejected.
An entity may enter into a contract with a supplier before the supplier’s depositing of performance bond in advance.
The release of performance bond may be made in whole or in parts, conditional upon progress of contract performance, inspection and acceptance, maintenance or warranty period, etc., and this shall be prescribed by the entity in the tender documentation, upon considering the characteristics and actual needs of the procurement.
Performance bond shall, unless otherwise prescribed in the contract or that there are circumstances in which it shall not be released, be released upon conditions for release have been met and when nothing is pending to be resolved. In the event that the contract is terminated, rescinded or suspended for causes not attributable to the supplier, the bond may be released ahead of time. However, where the contract is being suspended, a performance bond shall be deposited again when the cause for the suspension has been eliminated.
Where procurement is carried out under multiple award pursuant to subparagraph 4 of paragraph 1 of Article 52 of the Act, and that the supplier deposits the performance bond for the awarded items jointly, the bond shall be released separately in accordance with the preceding two paragraphs.
The circumstances in which a performance bond and the accrued interest thereon shall not be released shall be prescribed by an entity in the tender documentation upon considering the characteristics and actual needs of the procurement.
An entity may prescribe in the tender documentation the circumstances in which a part or the whole amount of performance bond (including the accrued interest thereon, applicable hereinafter) deposited by a supplier shall not be released as follows:
1. where one of the circumstances provided in subparagraphs 3 to 5, or 7 of paragraph 1 of Article 50 of the Act occurs, and that claim for damages may be sought after pursuant to the first part of paragraph 2 of the same Article, an amount of the bond that equals the amount of the claim shall not be released;
2. where the supplier is in breach of Article 65 of the Act by assigning the contract to other parties, the whole amount of the bond shall not be released;
3. where the supplier has reduced the work or materials without prior approval, and that the amount of the work or materials thus reduced plus the losses thus incurred cannot be completely set off against the contract value payable, an amount of the bond equal to the insufficient amount shall not be released;
4. where part of the contract is terminated or rescinded due to causes attributable to the supplier, an amount of the bond calculated based on the proportion of the contract value accounted for by the value of such part shall not be released; where the whole contract is terminated or rescinded, the whole amount of the bond shall not be released;
5. where the subject matter does not pass inspection or acceptance and the supplier fails to take actions as required within the time-limit specified in the notice, and that the amount of the non-conforming parts and the losses thus incurred, plus any additional expenses or punitive penalties cannot be completely set off against the contract value payable, an amount of the bond equal to the insufficient amount shall not be released;
6. where the supplier fails to perform the whole or part of the contract within the time-limit prescribed in the contract or an agreed extension thereof by the entity, and that the amount of delay penalty cannot be completely set off against the contract value payable, an amount of the bond equal to the insufficient amount shall not be released;
7. where the supplier is required to return an amount of the contract value paid but fails to do so, the like amount of the bond shall not be released;
8. where the supplier fails to extend the validity period of the bond as prescribed by the contract, the amount that requires extension shall not be released; and
9. any other circumstances attributable to the supplier, which results in a loss suffered by the entity, and that the supplier fails to pay the compensation which it is liable, the amount of the bond equal to the compensation payable shall not be released;
The performance bond referred to in the preceding paragraph that shall not be released may, for the circumstances in which release in parts is required by the contract, be the part that has not been released; the accrued interest that shall not be released shall be the interest on such bond accrued after the bond has been deposited.
Where two or more circumstances referred to in paragraph 2 occur in one contract, these shall be applied separately. However, the summed amount shall, where it exceeds the total amount of the performance bond, be limited to the total amount.