Performance guarantee
A performance guarantee is a promise, often from a bank, insurer or parent company, to pay or step in if a contractor or supplier fails to perform its contract. It is common in construction, engineering, public tenders and large supply deals.
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Sample Performance guarantee clauses
The Guarantor has agreed to guarantee the due performance of the obligations of the Company under the Agreements upon the terms and conditions set forth in this Performance Guarantee.
Performance Guarantee. The Guarantor hereby absolutely and irrevocably guarantees to the Minister the full, prompt and complete performance of the Company’s obligations, covenants and commitments under the Agreements, and under all documents and other instruments delivered by them respectively under the Agreements (together with the Agreements referred to as the “SIF Documents”), as any one or more of the SIF Documents may be updated, amended, modified, added to, replaced, restated or supplemented from time to time before or after the date of this Performance Guarantee, and whether or not notice of any such update, amendment, modification, addition, replacement, restatement or supplement has been provided to the Guarantor (the “Guaranteed Obligations”). Notwithstanding anything to the contrary, the Guarantor’s guarantee of the Guaranteed Obligations or indemnity of the Minister for such Guaranteed Obligations shall not be greater than the obligations which the Company owes to the Minister under the terms and conditions of the SIF Documents and the Guarantor shall receive the benefit of all rights and defences available to the Company under the SIF Documents related to the performance of the Guaranteed Obligations.
Representations. The Guarantor represents and warrants as follows to the Minister, as of the date of this Performance Guarantee, and acknowledges and agrees that the Minister is relying on such representations and warranties and is entitled to do so in entering into this Performance Guarantee: (a) The Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) The Guarantor has all necessary power, capacity and legal authority to enter into, execute and deliver this Performance Guarantee and to perform its obligations under this Performance Guarantee, and this Performance Guarantee has been duly executed and delivered by the Guarantor, and constitutes a legal, valid and binding obligation of the Guarantor enforceable against the Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency and other laws of general application limiting the enforceability of creditors’ rights, and to the fact that specific performance and injunctive relief are equitable remedies available only in the discretion of the court; and (c) neither the execution and delivery of this Performance Guarantee, nor the compliance with the terms of this Performance Guarantee by the Guarantor has resulted or will result in a breach of, or constitute a default under any instrument, agreement, commitment, covenant or other obligation to which the Guarantor is a party or by which the Guarantor is bound, which breach or default would have a material adverse effect on the Guarantor’s ability to perform its obligations under this Performance Guarantee.
This Performance Guarantee shall be binding upon the undersigned, its successors and assignees and shall inure to the benefit of and be enforceable by the Owners, their successors and assignees. We shall have no right to delegate nor assign any of the obligations or liabilities undertaken in this Performance Guarantee without the prior written consent of the Owners.
Additionally, pursuant to a Performance Guarantee dated as of December 16, 2014, and confirmed as of May 31, 2023, made by Wintrust in favor of Plaza Trust (“Amendment of Performance Guarantee”), Wintrust guarantees the performance of First Canada of its obligations under the Receivables Purchase Agreement and any subsequent amendments thereto.
In order to ensure the normal development of Party B’s business, Party A agrees to act as the performance guarantee Party of Party B in the contract, agreement or transaction related to its business operation concluded between Party B and any other third party on the premise that Party B meets the following relevant provisions of this agreement, and according to its own judgment and decision, Party A shall provide a comprehensive performance guarantee for Party B to perform such contracts, agreements or transactions. According to the above performance guarantee arrangement, Party A, as the performance guarantee Party of Party B, will sign a written guarantee contract with the other party of Party B to undertake the guarantee liability.
Performance Guarantee. (a)Hertz hereby irrevocably and unconditionally guarantees to the Beneficiaries, the due and punctual performance and observance by each of the Dutch Administrator, French Administrator, German Administrator and Spanish Administrator (together the “Administrators”) and each of the Servicers of its obligations under the Related Documents and of all of the terms, covenants, conditions, agreements and undertakings to be performed or observed by each of the Servicers and the Administrators under the Related Documents in accordance with the terms hereof and thereof including any agreement of the Servicers and the Administrators, in such capacity, to pay or deposit any money under the Related Documents (all such terms, covenants, conditions, agreements and undertakings to be performed or observed by the Servicers and the Administrators, in such capacity, being collectively referred to as the “Guaranteed Obligations”) and the due and punctual payment by each Lessee of all amounts to be paid by each Lessee pursuant to Clause 4 (Rent and Lease Charges) and Clause 13 (Value Added Tax and Stamp Taxes) of each Master Lease (together the “Guaranteed Monies”), in each case after any applicable grace periods or notice requirements, according to the terms of the Related Documents; provided, however, that Hertz shall not be liable to make any payment or deposit in respect of a Guaranteed Obligation or the Guaranteed Monies (each, a “Guaranteed Payment Obligation”) until five Business Days following receipt by Hertz of written notice from the relevant FleetCo that such a Guaranteed Payment Obligation is due that has not been satisfied by the Servicers, the Administrators or the Lessees (as applicable). In the event that the Servicers or the Administrators shall fail in any manner whatsoever to perform or observe any of the Guaranteed Obligations or the Lessees shall fail in any manner whatsoever to pay the Guaranteed Monies when the same shall be required to be performed or observed (after any applicable grace periods and notice requirements, according to the terms of the Related Documents, and the notice requirements set forth in the preceding sentence), then Hertz will itself duly perform or observe, or cause to be duly performed or observed, such Guaranteed Obligation, or pay such Guaranteed Monies and it shall not be a condition to the accrual of the obligation of Hertz hereunder to perform or observe any Guaranteed Obligation, or to cause such Guaranteed Obligation to be performed or observed, or to pay any Guaranteed Monies that any Beneficiary shall have first made any request of or demand upon or given any notice to Hertz (other than the notice required pursuant to the preceding sentence) or to the applicable Administrator, Servicer or Lessee, or their successors or assigns, or have instituted any action or proceeding against Hertz or the applicable Administrator, Servicer or Lessee, or their successors or assigns in respect thereof; provided, however, that for the avoidance of doubt, nothing contained herein shall be construed to be a waiver by Hertz of the requirement that notice be provided to Hertz with respect to each Guaranteed Payment Obligation in accordance with the preceding sentence.
Source
Sunrun Inc. (RUN)Each agreement type typically has a term of 25 years from the in-service date and newer agreements provide either a 90 percent or 95 percent performance guarantee (the “Performance Guarantee Percentage”). Some pre-2017 performance guarantees could be as high as 100 percent. Sunrun does not provide a performance guarantee for systems in Hawaii with battery storage and systems in Florida. If the energy production over the term of the agreement does not meet the performance guarantee, Sunrun is to refund the difference to the Site Owner at the rate per kWh specified in the agreement.
The performance guarantee submitted by Party B shall be an irrevocable demand guarantee issued by a bank approved by Party A in accordance with Party A’s requirements (the form of the performance guarantee shall be subject to the text provided by Party A). The performance guarantee is one of the prerequisites for the payment of the contract price.
What is a performance guarantee?
A performance guarantee is a promise that protects the buyer or project owner if the contractor or supplier does not perform the contract as agreed. Usually a third party, such as a bank, an insurance company (surety) or the contractor’s parent company, promises to pay an agreed amount or to make sure the work gets done.
It gives the owner security without holding back large payments, and it is a standard requirement in construction, engineering, energy projects and public tenders.
How does a performance guarantee work?
- The contract requires one, often 5% to 10% of the contract value for a bank guarantee, while US surety performance bonds on public projects often cover 100%, delivered at signing or before work starts.
- The contractor arranges it with its bank, a surety or its parent company, in favor of the owner.
- If the contractor fails to perform, the owner makes a written demand or claim under the guarantee.
- The guarantor pays the amount due, up to the cap, or in some bonds arranges for the work to be completed.
- The guarantee ends on a set expiry date or on completion, and is often replaced by a smaller warranty guarantee for the defects period.
Types of performance guarantee
| Type | Given by | How the owner claims |
|---|---|---|
| Bank guarantee (on demand) | A bank | A written demand, usually without proving the default |
| Performance bond | An insurer or surety | Proof that the contractor defaulted |
| Parent company guarantee | The contractor’s parent | Claim against the parent, which steps in or pays |
| Standby letter of credit | A bank | A demand with the documents the letter lists |
In Germany, construction contracts often secure performance with a Vertragserfüllungsbürgschaft, a guarantee usually worth 5% of the contract price, or with a cash retention.
Performance guarantees in services
In service contracts, “performance guarantees” can also mean measurable promises by the provider itself, for example uptime, response times or savings targets in healthcare benefits and outsourcing contracts. If the provider misses them, it pays agreed credits or penalties. They work more like liquidated damages agreed in advance than like third-party security.
What a performance guarantee clause should include
- Form and issuer: the type of guarantee and who may issue it, for example a bank with a minimum credit rating.
- Amount: a fixed sum or a percentage of the contract price, and whether it reduces over time.
- Delivery date: when it must be provided, and the consequence if it is not.
- Claims: on demand or only with proof of default, and the documents required.
- Expiry and return: when it ends and when the original must be returned.
Performance guarantee clause example
Sample clause: Performance guarantee
Add this clause to a contract, send it and get it signed in fynk.
Use it in fynk for freeHow to track guarantee expiry dates
A guarantee that expires before the work is finished leaves the owner without security, and a guarantee that is never returned costs the contractor fees. In fynk, guarantee amounts and expiry dates are fields in the contract, the guarantee itself sits next to it as a related file, and reminders go out before it runs out.
Which contracts contain a performance guarantee?
Construction and EPC contracts, engineering and infrastructure contracts, public tenders, large supply and equipment contracts, outsourcing and benefits administration agreements. This free template includes one:
Free templates with this clause
EPC agreement templateThe contractor provides performance guarantees to the owner in an agreed form, with the guaranty contract attached as an annex.
Use the free template
Related clauses
- Performance bond A performance bond is a financial guarantee issued by a third party, typically a bank or insurance company, ensuring that a contractor will fulfill their obligations as stipulated in a contract. If the contractor fails to perform satisfactorily, the bond provides compensation to the project owner for any resulting financial losses or project completion costs.
- Guarantee A guarantee clause in a contract assures one party that certain conditions or obligations will be fulfilled, offering a promise of performance or a backup remedy if the specified terms are not met. It often involves the guarantor providing financial security or taking responsibility to ensure the contract's commitments are upheld.
- Performance warranty A performance warranty clause is a contractual provision where the seller or service provider guarantees that their goods, services, or work will meet specified performance standards or criteria. If these standards are not met, the clause typically outlines the remedies or corrective actions that the buyer can pursue.
- Quality guarantee A quality guarantee clause ensures that the goods or services provided by the seller will meet specified standards of quality, performance, or durability. If the agreed-upon quality is not met, the clause typically outlines the buyer's rights and remedies, including repair, replacement, or refund options.
Frequently asked questions
Both secure performance. A performance guarantee is often an on-demand bank guarantee paid on a written demand, while a performance bond from a surety usually requires proof that the contractor defaulted, and the surety may arrange completion instead of paying.
Bank guarantees are often 5% to 10% of the contract value. US surety performance bonds on public projects usually cover 100% of the contract price. The contract or tender sets the amount.
The contractor or supplier. The bank or surety charges a fee, usually a percentage of the guaranteed amount, which the contractor builds into its price.
A guarantee from a bank to pay the beneficiary up to a set amount if the bank's customer fails to perform a contract. Many, especially in international trade, are payable on first demand, without proof that the customer actually failed to perform.
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