International Construction

Contract & Claims Management

“A Performance Security is a
powerful risk transfer mechanism and
understanding how to enforce a Performance
Security has a significant importance.”

Most of the owners of the Construction Projects require the Contractor to provide
a ​Performance Security​ ​for securing the performance of the Contract​.

Sub-Clause 4.2 [​Performance Security]​ in the ​2017 Editions of the Red, Yellow
and Silver Books defines and describes ​the process regarding the Performance
Securities.

Steps of the Performance Security Mechanism

1. The Value of the Performance Security

1.1. Revising the Amount of Performance Security

2. Approval by the Employer

2.1. The Form of the Performance Security
2.2. Issuer of the Performance Security

3. Submission of the Performance Security

4. The Employer’s Entitlement to Make a

Claim

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5. Receiving any Amount under Performance

Security

6. Validity of the Performance Security

7. Return of the Performance Security

1​ The Value of the Performance Security

The amount of the Performance Security is stated in the

Contract Data and ​usually specified as a percentage of
the ​Accepted Contract Amount​.

1.1 ​Revising the Amount of the Performance

Security

If any ​cumulative increase or ​decrease of the Contract

Price by ​more than twenty percent (20%) of the
Accepted Contract Amount in accordance with ​Clause
13 [​Variations and Adjustments​] ​arises​;

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​In case of an Increase

The Contractor is to increase the amount of

the Performance Security ​by a percentage
equal to the cumulative increase whenever
the ​Employer requests​.

​In case of a Decrease

With permission of the Employer​, the

Contractor may decrease the amount of the
Performance Security ​by a percentage equal
to the cumulative decrease​.

2​ Approval by the Employer

The Employer is to ​approve various details regarding the

Performance Security.

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2.1 ​The Form of the Performance Security

The form of the Performance Certificate should be
approved by the Employer. Performance Certificate
may be;

In the form annexed to the Particular

Conditions
Annex C: ​Demand Guarantee
Annex D: ​Surety Bond

In another form ​agreed by the Employer.

2.2 ​Issuer of the Performance Security

The Employer is to approve​;

The Entity

The Country

issuing the Performance Security.

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3​ Submission of the Performance Security

The Contractor is to submit the Performance Security

to the Employer;

Within 28 days after receiving the ​Letter of

Acceptance1.

In the ​amount and ​currencies stated in the

Contract Data​.

With a ​copy to the Engineer​.

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The Contractor is to submit the Performance Security to the Employer within 28 days after ​both Parties have
signed the Contract Agreement ​in the​ FIDIC 2017 Silver Book.

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4​ The Employer’s Entitlement to Make a Claim

The Sub-Clause 4.2.2 provides that the Employer is not

to make a call on the Performance Security ​except in
the circumstances listed out at items (a) to (e)​.

Failure by the Contractor to ​extend the

Performance Security beyond the expiry date
if the Works are not completed at date.

Failure by the Contractor to pay an amount to

the Employer under ​Sub-Clause 3.7
[​Agreement or Determination​]2 or ​Clause 21
[​Disputes and Arbitration​],​ within ​42 days
after the date of agreement/determination or
decision/arbitral award.

Failure by the Contractor to ​remedy a default

within 42 days of being notified of the defect
in accordance with ​Sub-Clause 15.1 [​Notice to
Correct​].​

When an Employer can terminate the contract

under ​Sub-Clause 15.2 [​Termination for
Contractor’s Default]​ ​.

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​Sub-Clause 3.5 [​Agreement or Determination​]​ in the ​FIDIC 2017 Silver Book​.

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Failure by the Contractor to repair ​defective

and damaged Plant out of the Site in
accordance with ​Sub-Clause 11.5 [​Remedying
of Defective Work off Site​] and return it by the
date of expiry for the relevant duration stated in
the Contractor’s Notice.

5 Receiving any Amount under the Performance

Security

The amount received under the Performance Security

is to be considered;
In the Final Payment Certificate​ in accordance with,

Sub-Clause 14.13 [​Issue of FPC​]

In case of termination of the Contract; ​in payment due to

the Contractor​ in accordance with,

Sub-Clause 15.4 [​Payment after Termination for

Contractor’s Default]​

Sub-Clause 15.7 [​Payment after Termination for

Employer’s Convenience​]

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Sub-Clause 16.4 [​Payment after Termination by

Contractor]​

Sub-Clause 18.5 [​Optional Termination​]

Sub-Clause 18.6 [​Release from Performance

under the Law]​

6​ Validity of the Performance Security

The Performance Security has to be ​valid and

enforceable until the issue of the
Performance Certificate and compliance
with ​Sub-Clause 11.11 [​Clearance of Site​]​.

By the date ​28 days before the Expiry Date

of the Performance Security​, if the
Contractor is not entitled to receive the
Performance Certificate, ​the validity of the
Performance Security ​is to be extended by
the Contractor​.

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7​ Return of the Performance Security

The Employer shall return the Performance Security to

the Contractor3:

(a) Within 21 days ​after the issue of the

​

Performance Certificate and the

Contractor has complied with ​Sub-Clause
11.11 [​Clearance of Site]​ ​; or

(b) Promptly after the date of termination if

the Contract is terminated in accordance
with ​Sub-Clause 15.5 [​Termination for
Employer’s Convenience]​ ,​ ​Sub-Clause
16.2 [​Termination by Contractor​]​,
Sub-Clause 18.5 [​Optional Termination]​
or ​Sub-Clause 18.6 [​Release form
Performance under the Law]​ ​.

This information is provided for your convenience and does not constitute any “Legal Advice”.
This document is prepared for the general information of the interested persons. This should
not be acted upon in any specific situation without appropriate legal advice.
This information may not be reproduced or translated without the prior written permission of
eayglobal.com ​For further information please contact​ ​eay@eayglobal.com

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The same Sub-Paragraph letters are used as in ​Sub-Clause 4.2.3 [Return of the ​Performance Security​] of the
2017 FIDIC Red, Yellow and Silver Books.

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