The supplier offered us a 2% Performance Bond for the guarantee of the delivery of the good. My question is: What is the difference between a Performance Bond and a Performance Guarantee?
The Performance Bond (PB) is a guarantee that follows the goods to the destination port in where if the goods can be rejected for good reason, then applying on the collection of P.B supported by a B.G. Both the Performance Guarantee and the Performance bond are “based” on performance yet both are different types of performance assurance.
A Performance Bond is for a deal that works for the supplier in possession of goods and an end buyer taking possession of goods. The delivery of title documents cannot be secured so an intermediary is not to enter in such deals.
A Performance Guarantee is a guarantee given by the seller’s bank to the buyer’s bank in the form of an unconditional Stand-By letter of Credit. If the delivery fails and the delivery documents are not presented to the bank on the date specified in the contract, the bank just automatically pays buyer bank the Performance Guarantee unconditionally, No questions asked.
So the buyer must ask the seller to issue a Performance Guarantee (PG) of 2% (Not a Performance Bond) of the total cost as defined in contract, issued as unconditional as per Stand-by Letter of Credit procedures defined under UCP600 banking rules, issued within 3 days of buyers L/C being transferred.