CLYDE & CO UPDATER - PERFORMANCE SECURITY BONDS IN TANZANIA

A Performance Security Bond (Performance Bond) is a contract of guarantee in which one party (the Guarantor) promises to discharge the liability of a third party in the event of default. Performance Bonds are designed to ensure the performance of duties by parties to a contract. In this month’s legal update, we highlight the key aspects of Performance Bonds and their implications in Tanzania.

The following laws are applicable to this article:

• The Banking and Financial Institutions Act No. 5 of 2006 (the BFI Act)
• The Law of Contract Act, Cap 345 R.E. 2019 (the LCA)
• The Public Private Partnership Act No. 18 of 2010 (as amended)
• The Public Procurement Regulations, GN No. 446 of 2013 (as amended) (the Regulations)

Performance Bonds are governed by the provisions of the LCA. It should be noted that banks and financial institutions are among the main providers of Performance Bonds in Tanzania alongside insurance companies. Banks and financial institutions are permitted to issue guarantees pursuant to section 24 (1) (f) of the BFI Act.

How Performance Bonds are commonly used in Tanzania

In Tanzania, Performance Bonds are commonly used in public-private partnerships (PPPs) where a Government agency/authority (the Beneficiary) seeks expertise from a private entity (the Supplier). Under such circumstances, the Beneficiary would require the Supplier to obtain a Performance Bond as a guarantee to perform the required services.

The submission of a Performance Bond under the PPP regime is provided for under regulation 29 (1) of the Regulations which provides as follows:

“(1) The procuring entity shall require the successful tenderer to submit a performance security to guarantee the faithful performance of the contract and payment of all labourers, suppliers, mechanics and subcontractors, if any”.

Continue Reading > > >