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Performance Bond

This document discusses various topics related to construction contracts including performance bonds, insurance types, CIDB levy, and considerations for contractors. A performance bond guarantees that a contractor will fulfill their contractual obligations. Common insurance types in construction include all risks insurance, public liability insurance, and workers' compensation insurance. The CIDB levies contractors 0.125% of the contract sum for contracts over RM500,000, and failure to pay can result in fines or disciplinary actions. Contractors must ensure levies are priced in tenders and that projects derived from larger contracts are not double-levied.

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Farhana Zainal Abidin
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223 views4 pages

Performance Bond

This document discusses various topics related to construction contracts including performance bonds, insurance types, CIDB levy, and considerations for contractors. A performance bond guarantees that a contractor will fulfill their contractual obligations. Common insurance types in construction include all risks insurance, public liability insurance, and workers' compensation insurance. The CIDB levies contractors 0.125% of the contract sum for contracts over RM500,000, and failure to pay can result in fines or disciplinary actions. Contractors must ensure levies are priced in tenders and that projects derived from larger contracts are not double-levied.

Uploaded by

Farhana Zainal Abidin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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TUTORIAL 2

QSM 560

NAME : NURFARHANA BINTI ZAINAL ABIDIN

MATRIC NO : 2012564521

CLASS : AP224 4B

LECTURER : PN RAJA RAFIDAH RAJA MUHAMMAD ROOSHIDI

PERFORMANCE BOND.

A Performance Bond is a form of guarantee to be submitted by the contractor who


obtains a contract from the client, which may be held by the client to protect its interest and to
ensure that the contractor perform all obligations under a contract. In other words it for insuring
a client against the risk of a contractor failing to fulfill contractual obligations to the client. If the
contractor fails to construct the building according to the specifications laid out by the contract,
the client is guaranteed compensation for any monetary loss.

Rates of performance bonds.

1. 2.5% of the contract value for supply/services contract worth RM200,000.00 to


RM500,000.00.
2. 5% of the contract value for supply/services contract exceeding RM500, 000.
3. For supply/services timed contract effective for a period of two (2) years or more, the
percentage and amount of performance bond is calculated according to the estimated
contract value per year. However, the performance bond submitted by the contractor
shall cover the entire timed contract period.
4. 5% of the contract value for works contract valued at more than RM200, 000.
Validity period of the performance bond.

1. Works Procurement

- Twelve (12) months after the completion of defect liability

period.
2. Supplies Procurement - Twelve (12) months after the last delivery or expiry date of
contract whichever is later.
3. Service Procurement

- Twelve (12) months after the contract expires.

INSURANCE

Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as the premium.
Insurance allows individuals, businesses and other entities to protect themselves against
significant potential losses and financial hardship at a reasonably affordable rate. We say
"significant" because if the potential loss is small, then it doesn't make sense to pay a premium
to protect against the loss.

TYPE OF INSURANCE IN COSTRUCTION INDUSTRY


All risks insurance This insures against physical damage to the works (and usually materials
on site). All risks insurance typically covers the full reinstatement value of
the works plus a mark up for any ancillary costs (such as consultancy and
professional fees) that are incurred.
Public liability insurance This provides cover for liability arising out of death or personal injury
to third parties (but not the contractors employees, who should be
covered by workers compensation insurance) or damage to
property belonging to third parties (but not the works, which is
covered by the all risks insurance) prior to the works being taken
over.
Workers compensation insurance - This insures the contractor against liability for the death or
personal injury to its employees (usually on site) when
performing the works.

CIDB LEVY

The regulatory requirements for Contractors to notify CIDB and submit details of
construction works bearing a value of RM 500,000.00 per contract on which a levy is imposed at
0.125% of the contract sum.

The imposition of Levy forms part of a list of regulatory requirements that affect
Contractors who undertake construction projects / works bearing a value of RM 500,000.00 per
contract. A Levy is imposed on the Contractor at 0.125% of the contract sum. Failure to comply,
Contractors who fail to comply will have violated an offence under the law and may result in a
fine not exceeding RM 50,000.00 or disiplinary actions taken against the defaulting Contractor in
the form affecting their Registration with CIDB:

cancellation

suspension

revocation

CONSIDERATIONS NEED TO BE TAKEN INTO ACCOUNT BY CONTRACTORS.

1. Contractors who undertake Construction projects as Main Contractors are to ensure that

levy is priced for in all tenders


2. Project management firms do not have to pay levy unless they are undertaking

Construction projects as Main Contractors.


3. Any construction works / projects that are derived from or constitute the integral part of a

contract for which a levy has already been imposed shall not be subjected to the
imposition of additional Levy.

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