Performance guarantee Template for Nigeria

A Performance guarantee is a legally binding promise where one party (usually a bank) commits to compensate another if a third party fails to meet specific obligations. In Nigeria's construction and procurement sectors, these guarantees protect project owners by ensuring contractors deliver as promised, with the bank stepping in to cover losses if they don't.

Under Nigerian banking regulations, performance guarantees typically cover 10% of the contract value and remain valid throughout the project timeline. They're essential for major government contracts and private sector deals, giving businesses the confidence to work with new partners while managing their risk exposure. The guarantor must be a licensed financial institution operating in Nigeria.

Performance guarantees become essential when you're entering high-value contracts in Nigeria, especially for construction projects, equipment supply, or service agreements. Banks and project owners require these guarantees before releasing advance payments or signing major contracts, particularly for government tenders where they're mandatory.

Use them to protect your interests when working with new contractors, during complex infrastructure projects, or in situations where contract failure would cause significant financial damage. They're particularly valuable in Nigeria's oil and gas sector, real estate development, and public procurement, where project delays or non-completion can lead to substantial losses.

• Contract Performance Guarantee: Standard form used in commercial contracts, covering general project completion and quality standards
• Performance Guarantee Bond: Issued by insurance companies instead of banks, often used in construction projects
• Contract Performance Bank Guarantee: Bank-issued guarantee specifically for large commercial transactions and government contracts
• Financial Performance Guarantee: Focuses on financial obligations and payments, common in import/export and trade financing

• Banks and Financial Institutions: Issue the Performance guarantee and assume financial responsibility if contractors default
• Project Owners/Clients: Request and hold the guarantee as security, including government agencies, oil companies, and property developers
• Contractors/Suppliers: Obtain guarantees to secure contracts and demonstrate financial capability to complete projects
• Legal Counsel: Draft and review guarantee terms, ensuring compliance with Nigerian banking regulations
• Corporate Officers: Sign and authorize guarantees on behalf of their companies, managing risk exposure

• Contract Details: Gather the main contract value, project timeline, and specific performance obligations to be guaranteed
• Party Information: Collect full legal names, registration numbers, and addresses of the contractor, beneficiary, and guarantor bank
• Guarantee Amount: Calculate the required guarantee value (typically 10% of contract value in Nigeria)
• Duration Terms: Define the guarantee's validity period, including start date and expiry conditions
• Documentation: Prepare corporate authorization documents and bank verification requirements
• Draft Generation: Use our platform to create a legally-sound Performance guarantee that meets Nigerian banking regulations

• Parties' Details: Full legal names, addresses, and registration numbers of guarantor, contractor, and beneficiary
• Guarantee Amount: Specific sum in Nigerian Naira, calculation method, and payment terms
• Validity Period: Clear start and end dates, plus conditions for extension or early termination
• Trigger Events: Precise circumstances that activate the guarantee's payment obligation
• Payment Mechanism: Detailed process for claiming and receiving payment under the guarantee
• Governing Law: Express statement of Nigerian law application and jurisdiction
• Execution Block: Authorized signatories' details and corporate seal requirements

A Performance guarantee differs significantly from a Bank Guarantee in several key aspects, though both involve financial institutions providing security. Understanding these differences is crucial for Nigerian business transactions.

• Scope and Purpose: Performance guarantees specifically cover project completion and quality standards, while Bank Guarantees can secure various financial obligations including loans, advance payments, or tender participation
• Trigger Conditions: Performance guarantees activate only upon contractor's failure to meet specific performance metrics, whereas Bank Guarantees can be called upon for broader financial defaults
• Duration: Performance guarantees typically last throughout the project lifecycle, while Bank Guarantees often have shorter, fixed terms
• Risk Assessment: Banks evaluate technical project capabilities for Performance guarantees, but focus mainly on financial standing for Bank Guarantees