Performance Bank Guarantee (PBG)

A Performance Bank Guarantee (PBG) is a bank guarantee the winning bidder submits after award to assure the procuring entity that the contract will be performed as agreed. If the contractor fails to deliver, the department can invoke the PBG and recover money from the bank.

What is Performance Bank Guarantee (PBG)?

A PBG is a written promise from a bank that pays the procuring entity a fixed sum if the contractor does not perform the contract properly. The successful bidder furnishes it at the time of signing the agreement, usually within 15 to 30 days of the Letter of Award.

The amount is typically 5 to 10 percent of the contract value. On GeM, an electronic version called ePBG is often set at 3 to 5 percent. The guarantee stays valid for the contract period plus the Defect Liability Period (DLP), so the department keeps protection even after the work is finished. When a bidder is declared L1 and wins, any Earnest Money Deposit (EMD) already paid is often adjusted against the PBG.

The PBG is returned after the DLP expires with no pending claims. Until then, the bank holds the security on the contractor's behalf, which ties up a credit line or fixed deposit.

Why PBG matters for bidders

A PBG affects your working capital before you earn a single rupee from the contract. Banks usually charge a commission and may require margin money or collateral to issue it, so factor that cost into your bid. Reading the Notice Inviting Tender (NIT) carefully tells you the exact percentage and validity expected, and pricing your Bill of Quantities (BOQ) realistically keeps the contract value (and therefore the PBG) manageable.

Example

A state PWD awards a road contract worth Rs 5 crore. The NIT requires a PBG of 10 percent. The winning contractor approaches their bank and arranges a guarantee of Rs 50 lakh, valid for the construction period plus a 24-month DLP. The contractor completes the road, and after the DLP ends with no unresolved defects, the bank releases the Rs 50 lakh guarantee.

Frequently Asked Questions

How is PBG different from EMD?

EMD is a small deposit paid with the bid to show you are serious, while PBG is a larger security furnished only by the winner to guarantee performance. EMD is typically 2 to 5 percent of the estimated cost; PBG is usually 5 to 10 percent of the contract value. For a full comparison of bid securities, see our EMD and bid security guide.

When do I have to submit the PBG?

You submit the PBG at the time of executing the agreement, generally within 15 to 30 days of receiving the Letter of Award. The contract is not finalised until the PBG and any stamp duty are in place.

When is the PBG returned?

The PBG is released after the Defect Liability Period expires with no pending claims against the contractor. Because the DLP can run from one to several years depending on the work type, the guarantee can stay locked for a long time.

What is ePBG on GeM?

ePBG is the electronic Performance Bank Guarantee used mainly on the Government e-Marketplace (GeM). It serves the same purpose as a paper PBG but is submitted online, and the required percentage is often 3 to 5 percent of the contract value.

Can the department invoke the PBG?

Yes. If the contractor fails to perform the contract as agreed, the procuring entity can invoke the PBG and the bank must pay the guaranteed amount. This is why banks treat a PBG as a credit exposure and may ask for margin or collateral before issuing one.