On the use of performance bond in contracts, some Government Departments use:
insurance guarantee;
or
deduct the % from the monthly repayment (for maintenance) or % from the project.
Certain Department / Ministry still use performance bond.
Propose that:
performance bond for amount exceeding RM 50,000.
and
for amount less than RM 50,000, pay by cash, insurance or deduct from the clams.
Reply
The current practice as stipulated in Para 50 of the Treasury Circular Letter (TCL)No. 5 2007 dated 27 February 2007 states that:
Performance bonds only apply for procurement above RM200,000, which can be obtained from locally incorporated banks, insurance companies, takaful companies and financial institutions that are licensed to operate in Malaysia.
In addition, the Government introduced performance guarantee or Wang Jaminan Pelaksanaan (WJP) as an alternative instrument for procurement of works only in order to help contractors in the event they fail to produce performance bond.
Through the WJP, a deduction of 10% is made from progress payment until it reaches the amount of performance bond rate.
The current rates of performance bonds are as follows:
