What is a performance bond, and when is it released?

A performance bond (kesin teminat) is the guarantee that the winning bidder in a Turkish public tender gives the contracting authority before signing the contract. Under Article 43 of the Public Procurement Law (Law No. 4734), its purpose is to secure performance of the work in line with the contract and the tender documents. If the contractor completes the work as agreed, the bond is released; if the contractor fails to perform, the authority can forfeit it.

How is it different from a bid bond?

A bid bond (geçici teminat) is submitted with the bid, and under Article 33 of the Law it can’t be less than 3% of the bid amount. A performance bond is required after the tender has been decided. Under Article 42, the bidder awarded the tender is notified to provide the performance bond and sign the contract within 10 days of being served the notice.

Under Article 44, the bid bond is released as soon as the contract is signed. If the bidder doesn’t provide the performance bond and sign the contract, its bid bond is forfeited.

How much is a performance bond?

Under Article 43 of the Law, the performance bond is 6% of the contract price. For a winning bid below the threshold for abnormally low bids (sınır değer), the Public Procurement Authority (Kamu İhale Kurumu) can set a rate of 6% to 15% of the estimated cost. For construction works in that case, Article 56 of the Regulation on the Implementation of Construction Works Tenders sets the bond at 9% of the estimated cost.

In consultancy service tenders, if the tender documents say so, the performance bond may not be taken before the contract. In that case, 6% of each progress payment is withheld as a guarantee.

Under Article 34 of the Law, cash in Turkish lira, letters of guarantee, and Turkish government domestic borrowing securities (Devlet İç Borçlanma Senetleri) are accepted as guarantees. Under Article 35, the authority sets the term of a performance bond letter of guarantee based on the work’s completion date.

When is it released, and when is it forfeited?

Under Article 13 of the Public Procurement Contracts Law (Law No. 4735), the performance bond is released once it’s established that the contractor has performed the contract as agreed and owes nothing to the authority:

• In construction works, half after any defects and omissions are remedied and the provisional acceptance certificate is approved; the rest after the contractor presents a clearance certificate (ilişiksiz belgesi) and the final acceptance certificate is approved.
• In other work, after the clearance certificate is presented: if a warranty period applies, half at that point and the rest when the warranty period ends; if there’s no warranty period, the full amount.

If the contractor doesn’t pay debts arising from the work on time, the bond is converted to cash and applied against the debt. In the cases listed in Article 20 of Law No. 4735, the contract is terminated and the performance bond is forfeited. One example is a contractor that still fails to perform after the authority’s formal notice.

Performance bonds in IWB

In IWB, you record a tender you’ve won lot by lot in Tender Tracking: the contract value, currency, performance bond rate and basis, and the deadline for signing the contract. If the bid is below the abnormally low threshold, the basis becomes the estimated cost and you can enter a rate between 6% and 15%. The performance bond amount appears next to the basis and rate, and the screen reminds you that missing the signing deadline means the bid bond is forfeited.

Letters of guarantee are kept in Finance, not on the tender record. Each letter’s release is tied to an event: the award notice, contract signing, provisional acceptance, final acceptance, or the end of the warranty period. Letter of guarantee commissions are included in the cash flow forecast.

In Contracts, provisional acceptance starts the release of half the performance bond and final acceptance the rest, and each opens a task for the release. No release can start before the acceptance is approved. On termination, IWB decides from the termination type whether the bond is forfeited or released; the user doesn’t make that choice.