TOP 5 common questions about contract Performance Guarantee in bidding

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DauThau.info has recently received a large number of inquiries from contractors regarding contract performance guarantees. Below are some common queries that DauThau.info has received and would like to share with you; please feel free to refer to them! 

1. Is it legal to guarantee the performance of contracts with cash?

DauThau.info answers: According to Clause 1, Article 68 of the Bidding Law 2023, contract performance guarantees are applied to the following solutions:
a) Depositing a bid security amount;
b) Submitting a guarantee letter from a domestic credit institution, or a foreign bank branch established under Vietnamese law;
c) Submitting a guarantee insurance certificate from domestic non-life insurance companies, or foreign non-life insurance company branches established under Vietnamese law.
In accordance with the Investor's specifications, the contractor will guarantee the performance of the contract. This approach is legal if cash deposits are accepted as a guarantee of contract performance. If a cash deposit is prohibited from guaranteeing contract performance, the contractor shall adhere to alternative measures, such as submitting a check or obtaining a guarantee letter from a bank or credit organization.
 

2. Is it necessary to submit the original copy of the contract performance guarantee to the investor?

DauThau.info answers: Normally, the bidding documents will specify this content, for example, according to the provisions in Section 5.1 Chapter VI - Specific conditions of the contract, in the form of online bidding documents for construction, issued  with Circular 08/2022/TT-BKHĐT of the Ministry of Planning and Investment in 31/05/2022: 

5.1. The contract performance guarantee must be submitted to the Investor no later than the date specified in the E-HSDT Acceptance Letter and the contract award. The contract performance guarantee is executed by submitting a guarantee letter from a credit institution, foreign bank branch established under Vietnamese law, and it must be an unconditional guarantee (payment upon request), as per Form No. 14 Chapter VIII. The contract performance guarantee must be valid and effective as specified in E-ĐKCT. 

Thus, the contract performance guarantee needs to be submitted to the investor no later than the date specified in the E-HSDT Acceptance Letter and the contract award. Usually, the original of the contract performance guarantee must be submitted because it serves as a 'collateral' in case the winning contractor fails to fulfill the contract, allowing the investor to confiscate this amount.
 

3. Does simplified direct contracting require contract performance guarantees?

DauThau.info answers: According to paragraph 2, Article 68 of the 2023 Bidding Law, the contract performance guarantee is applicable to all selected contractors, except for the following cases:

a) Contractors providing consulting services;
b) Contractors selected by self-execution or PPP (Public Private Partnership) methods;
c) Contractors executing bidding packages where the package value falls within the designated bid limit specified in point M, paragraph 1, Article 23 of this Law.

Point M, paragraph 1 of Article 23 of the 2023 Bidding Law states:

m) Bidding packages within the procurement budget with a package value ranging from more than 50 million VND to 100 million VND; bidding packages for investment projects of state-owned enterprises, enterprises wholly owned by state-owned enterprises, and investment projects according to the Public Investment Law, which include consulting service bidding packages with a package value not exceeding 500 million VND, non-consulting, goods, construction, and mixed bidding packages.
In case it is necessary to adjust the limits specified in this point to suit socio-economic conditions and state management requirements, the Government shall submit it to the Standing Committee of the National Assembly for consideration and decision.

Therefore, except for the cases mentioned in paragraph 2, Article 68 of the 2023 Bidding Law, all bidding packages require a contract performance guarantee. For direct contracting and simplified direct contracting, if it does not fall under the packages specified in point m, paragraph 1, Article 23 of the 2023 Bidding Law, a contract performance guarantee is still required.

4. What is the penalty for failing to submit a performance guarantee on time? 

DauThau.info answers: According to the requirements in Section 35, Chapter I - Contractor Instructions, of the Standard online Bidding Document for Construction issued by the Ministry of Planning and Investment with Circular 08/2022/TT-BKHT dated 31/05/2022:

In case the winning contractor fails to finalize, sign the contract, or does not submit the contract performance guarantee within the deadline specified in the E-HSDT acceptance notification and contract award, the contractor will be disqualified and will not be refunded the bid security as stipulated in point b, Section 18.5 of E-CDNT. The deadline mentioned in the E-HSDT acceptance notification is calculated from the date the invitation to bid sends this notification to the winning contractor on the System.

Therefore, if the contract performance guarantee is not submitted within the deadline specified in the E-HSDT acceptance notification, the contractors will be disqualified and not be refunded.
 

5. How will the proceeds from the non-refunded contract performance guarantee be used?

DauThau.info answers: The proceeds from the non-refunded contract performance guarantee will be used according to the regulations in Article 36 of Circular 08/2022/TT-BKHĐT as follows:

1. For projects and bidding packages using state budget funds, this amount will be deposited into the state budget in accordance with the laws on state budget.
2. For projects and bidding packages not using state budget funds, this amount will be used according to the financial regulations of the investor..
3. In cases where the Tender Notice is issued by a consulting firm hired for the project, this amount must be returned to the investor. The investor will use this amount according to the regulations corresponding to clauses 1 and 2 of this Article.

These are the insights shared by DauThau.info on the top 5 frequently asked questions about contract performance guarantee in bidding, which contractors may refer to. If contractors need clarification on other bidding contents or legal opinions for specific cases, they can contact DauThau.info through the following information for quick advice and support.

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