New Delhi, Apr 10 (KNN) The Government of India has revised the requirement of amount of the performance security from 5 per cent to 3 per cent.

According to the office memo released by Policy Division of Department of Expenditure, Ministry of Finance on April 3, 2023, the Rule 171 (i) of General Financial Rules (GFR) 2017 has been amended which now reads:  “Performance Security Performance Security should be for an amount of three to ten per cent of the value of the contract as specified in the bid documents.”

Earlier the lower threshold was five per cent.

The Performance Security may be furnished in the form of Insurance Surety Bonds, Account Payee Demand Draft, fixed Deposit Receipt from a Commercial bank, Bank Guarantee (including e – Guarantee) or online payment in an acceptable form. 

Federation of Indian Micro and Small & Medium Enterprises (FISME) - the national MSME body, does not seem to be enthused with the announcement.

“Reducing the lower threshold may benefit only the bidders of mega projects. MSMEs would have benefited if the reduction was in the upper threshold of 10 per cent, which has remained unchanged” Says Dinesh Singhal, Chairman of Public Procurement Committee of FISME.

He added that while the Rule allows acceptance of Insurance Surety Bonds besides the Bank Guarantee, the insurance companies have failed to offer suitable products rendering the reform infructuous.

The Central Government provides in all purchases, a 25 per cent reservation for Micro and Small enterprises.

MSMEs have been demanding that Insurance surety should be allowed to be used in place of Bank Guarantees and Performance Securities mandated in government tenders.

The Finance Minister had also announced it in Union Budget 2022-23 but insurance companies have not offered products replacing old guarantees.  (KNN Bureau)