NPM 142-2004

Requesting Entity: Department of Health

Issues Concern: Use of Performance Security Posted for a Current Contract for Another Contract



Whether or not a performance security posted for an ongoing contract may be used by the service provider for compliance with a new and similar contract.

The purpose for requiring the posting of a performance security prior to the signing of the contract is to guarantee that the winning bidder will not renege on its contractual obligations and to protect the procuring entity’s interests in the completion of the project. It is therefore imperative that performance security be posted prior to the signing of a contract and released only after the contract is completed as certified by the procuring entity.

In this regard, if the contract for which the performance security is posted is still ongoing, the service provider for that contract cannot make use of the said performance security for purposes of compliance in a new contract regardless of the fact that the incremental difference will be paid to cover any shortfall in amount. A performance security, being contract specific, may be retained by the procuring entity and used for purposes of compliance with a subsequent contract only after the contract for which it was posted has been completed as certified by the procuring entity.

In view of the foregoing, we are of the opinion that the suggestion for the DOH to retain the performance security posted for the current janitorial services contract and allow the current service provider to pay any incremental difference to cover the shortfall in amount is not in accordance with the principles of R.A. 9184 with respect to performance security. The suggested practice may only be applicable if the DOH has officially accepted that the contract for janitorial services for which the performance security was posted has been completed.