Manoj Chauhan Nov 13, 2013:

Bogged down by delivery and quality related problems, companies are thinking of new ways to ensure that their interests are not hampered in any procurement process. One of the ways is to introduce various clauses in the payment terms.
For example, buyers are including a performance bank guarantee (PBG) clause in the payment terms for large value items relating to maintenance, spares and operations (MRO). As per the PBG clause, suppliers have to open a bank guarantee in the name of the buyer, which the latter can encash in case of unsatisfactory performance.
Needless to say, suppliers are objecting to this as PBG is like a penalty clause for them for a sin they have not committed. They feel that if buyers work more collaboratively with them, most of the issues could be resolved across the table.
Due to the soaring energy prices in the middle of 2008, the input material cost of suppliers increased steeply and sometimes even exceeded their cost of production. Some MRO item vendors then failed to meet the delivery deadline for long term contracts as they waited to increase their order book before production. Consequently, their vendor rating, a summation of quality rating and delivery

Marion Lambert-Nuding (asker) Nov 13, 2013:

Thanks Now that's plain English! Thanks - and I appreciate that someone has actually read the post and tried to answer my question rather than point hunt! I'd award the points to you, but I don't seem to be able to...
If I may take a bit more of your time : What my client is worried about is that the client doesn't seem to have any obligations, it seems a bit one way. In other words, who decides whether or not the supplier has made a mess of their contract? The current performance guarantee wording is basically asking of the bank that they pay up without question.... Is there such as thing as a performance guarantee to the benefit of the supplier?

Daryo Nov 13, 2013:

Has anyone come across this before? Yes, sure. What it basically means is that if you make a mess of your contract, not only you'll get paid zilch, but you'll also have to pay a penalty (usually of up to 10 - 15% of the contract); the performance bond is there to make sure of that. Without naming names, not in every country you get fully paid to make a mess of your procurement contract, and then rightfully expect to get the next one....