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Contracts & Pricing

Performance Bond

A performance bond is a financial guarantee, usually from a bank, that pays the buyer a set sum if the supplier fails to fulfil its contractual obligations.

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The supplier arranges the bond, often as a percentage of the contract value, and the buyer can call on it if the supplier defaults — for example by not completing the work to standard or on time. It gives the buyer financial protection and signals that the supplier is credible enough for a bank to stand behind it.

Performance bonds are common in construction, engineering and large supply contracts, especially in public and government-linked procurement in Malaysia. They sit alongside other security instruments such as bank guarantees, and the bond amount, validity period and the conditions for calling it should be defined clearly in the contract.

Frequently asked questions

What is a performance bond?
A performance bond is a financial guarantee, usually from a bank, that pays the buyer a defined sum if the supplier fails to meet its contractual obligations.
How is a performance bond different from a bank guarantee?
A performance bond specifically guarantees the supplier's performance of a contract, while a bank guarantee is a broader instrument in which a bank promises to pay if the customer defaults on a stated obligation.

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