PPCC Training Manual 9 (1).doc

B if the contract after being awarded is not accepted

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(b) If the Contract, after being awarded, is not accepted by the tenderer. (c) If the bid Security (Bond) after the contract has been awarded is not replaced by a performance security Guarantee amount: as a rule 1-5 percent of the amount of the offer. The validity period is about 3 months after the signing of the contract. Bid security is required to ensure seriousness of the tenderer and it is usually requested in the form of an unconditional bank guarantee or Certified Check (Bank Draft) 10.1.2 Guarantees The purpose of providing a guarantee for performance is to ensure that the Procuring Entity receives the goods, works and services that it has contracted for and that it receives these within the time limit stipulated in the Contract. The third party or the guarantor is sometimes an insurance company that specializes in the business of bonding (performance Bond). An alternative to Insurance Companies is to seek the guarantee of a Bank. Performance Security Performance Securities issued by the Bank usually cover 10% of the contract value. They are normally irrevocable, unconditional and payable on first demand. They cost between 1-3%. They are widely used in procurement of goods, work and certain services. With the guarantee, the bank is obliged to pay the Procuring Entity the guaranteed amount in the event if the contractor has not met or 59
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insufficiently fulfilled its contractual obligation. The guarantee remains valid for the full amount until complete performance of the contract. Where contracts for work and materials are concerned, this generally includes the defect liability and warranty periods for the correct functioning of the works and the machine respectively. The period of validity of performance guarantees may be two years or longer. Performance Bonds are normally issued by Insurance Companies or bonding firms. They are widely used to secure performance in works contract. They usually cover between 20% - 100% of the contract value. The rates charged by bonding companies are in order of 0.5 - 1% of the contract price. The disadvantages of performance bonds from the beneficiary's point of view are that they are Conditional, ie that the bonding company can only be called upon to perform if relevant justifications can be provided. Unlike performance security, here the security undertakes to complete the contract in case of failure of the insured contractor through payment of the bills of the replaced contractor, up to completion of the contract or up to reaching the ceiling limit of the bond amount. 10.1.3 Advance Payment or Repayment Guarantees Repayment guarantees are frequently issued as security for advance/mobilization amounts under contracts. Such advance payments guarantees must be issued before prepayment is made, but enter into force only after receipt of such payment The purpose is to give the Procuring Entity ready access to money or property with which to compensate itself in case the contractor defaults in a payment Obligation.
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