Contract awarded
A contractor is awarded work subject to providing a performance guarantee.
Trade Finance
Performance Guarantee
An assurance that contracted work will be completed to the agreed standard — and financial recompense to the beneficiary if it is not.
What It Is
Assurance that contracted work will be completed
A Performance Guarantee (or performance bond) supports an obligation to complete contracted work to an agreed standard, rather than an obligation to pay money outright. It is most commonly used in construction, infrastructure and large supply contracts, where a beneficiary (often a project owner) wants assurance that a contractor will deliver, or that compensation will follow if they do not.
If the contractor fails to perform, the beneficiary can typically claim against the guarantee up to its face value, subject to the terms agreed at issuance. This shifts risk away from the beneficiary and gives the contractor a credible way to demonstrate commitment when bidding for or beginning work.
Who issues this instrument
Performance Guarantee instruments are issued by a bank or other authorised financial institution, not by MTG. MTG is a non-bank financial company that facilitates access to these instruments and coordinates the process on the client's behalf. See the disclaimer for full detail.
Key benefits
- Gives beneficiaries confidence that contracted work will be honoured
- Strengthens a contractor's position when bidding for work
- Clearly defined trigger conditions agreed at issuance
- Common requirement in construction and infrastructure tenders
- Backed by a bank's undertaking, not the contractor's promise alone
How It Works
The typical process.
Every transaction is different; this is the general shape of how performance guarantee arrangements proceed.
Application
The contractor applies to a bank for the guarantee, specifying beneficiary, amount and duration.
Issuance
The bank issues the guarantee in favour of the project owner or beneficiary.
Contract performance
The guarantee remains in place for the duration of the contracted work.
Release
The guarantee is released once the work is satisfactorily completed, per its terms.
MTG's Role
How MTG helps
MTG facilitates performance-guarantee arrangements for clients bidding on or delivering contracted work, coordinating with issuing banks and helping prepare the documentation a guarantee application requires.
As with other guarantee types, the issuing bank underwrites and issues the instrument. MTG's role is consultancy and facilitation, supported by digital tracking of renewal and expiry dates.
- Digital onboarding and document collection
- Transaction tracking through to issuance
- Automated notifications on status and deadlines
- Intelligent document processing for supporting paperwork
Get Started
Discuss a Performance Guarantee requirement.
Tell us about the transaction and we'll confirm whether this instrument fits.