Bonds & Guarantees

Performance Bonds in Kenya What contractors and employers need to know

A performance bond gives the project owner a financial safety net if a contractor fails to deliver. Here is how they work, what they cost, and why an insurer-backed bond beats tying up your bank facilities.

schedule 6 min read edit_note OPIB Advisory

verified Insurer-Backed

percent Typically 10% of Contract

bolt Faster Than Bank Guarantees

shield IRA Licensed Broker

If your business bids for construction, supply or services contracts in Kenya — whether for a county government, a parastatal, an NCA-registered project or a large private client — you will almost always be asked to provide a performance security. For most firms, the practical choice is a performance bond.

What is a performance bond?

A performance bond is a three-party undertaking between the contractor (the principal), the project owner (the beneficiary) and a surety — an insurance company or bank. If the contractor fails to perform the contract — abandons the site, misses agreed milestones, or delivers work that does not meet the specification — the surety compensates the owner up to the value of the bond.

Value: usually 10% of the contract sum in Kenya, though tenders may ask for anywhere between 5% and 20%.
Duration: from contract signing to practical completion, and sometimes through the defects liability period.
Wording: "on-demand" (unconditional) or "conditional" — this difference matters a great deal, and is covered below.

How it works

The tender or contract requires a performance bond of a stated percentage.
The contractor applies through OPIB with the contract documents, company profile and recent financials.
The underwriter assesses the contractor's capacity to deliver and may ask for a counter-indemnity and, in some cases, partial collateral.
The bond is issued in favour of the project owner.
If the contractor defaults, the owner calls the bond. The surety pays the owner, then recovers the amount from the contractor under the counter-indemnity.

On-demand vs conditional bonds

An on-demand bond pays out on a simple written demand from the owner, with little or no proof of default required. Government bodies and parastatals usually insist on this wording. A conditional bond only pays once the owner demonstrates that the contractor defaulted and that a loss was suffered. On-demand bonds carry more risk for the contractor, so always confirm which wording your contract requires before you price the job.

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Read the bond wording alongside the contract. A poorly drafted bond can expose you to a call even where you have performed — our team reviews the wording before it is issued.

Performance bond vs bank guarantee vs cash deposit

A bank guarantee ties up your overdraft or credit line and typically needs full cash cover or tangible security. A cash deposit locks away working capital for the life of the project. An insurance-backed performance bond keeps your banking facilities free for running the works, is usually cheaper, and can be issued faster once your file is in place.

What OPIB does for you

Places your bond across multiple IRA-licensed insurers and negotiates the rate.
Works to minimise or remove collateral requirements.
Reviews the bond wording against your contract before issue.
Manages extensions, reductions and the final release of the bond.
Supports you and liaises with the insurer if a call is ever made.

Key points

check_circleA performance bond secures the whole contract, usually at 10% of the contract value.
check_circleIt involves three parties: contractor, project owner and surety (insurer or bank).
check_circlePublic contracts almost always require on-demand wording — know your exposure.
check_circleAn insurance bond preserves your bank facilities, unlike a bank guarantee or cash deposit.
check_circleOPIB places the bond, negotiates collateral, and reviews the wording before issue.

Common Questions

Frequently Asked Questions

How much does a performance bond cost in Kenya? add

Pricing is a percentage of the bond value, set by the insurer based on the contract, your track record and financial strength. It is charged per year or per project term. Send us the tender and we will get you firm quotes.

Who can issue a performance bond? add

IRA-licensed insurance companies and banks. Most Kenyan contractors use insurance bonds because they do not consume banking facilities and are quicker to arrange through a broker.

How long does approval take? add

Once your company file (profile, financials, contract documents and counter-indemnity) is complete, straightforward bonds can be issued within a few working days. First-time applications take a little longer.

Can I get a bond without collateral? add

Often yes, depending on the bond size relative to your balance sheet and history. Where security is required we work to keep it to a minimum and, where possible, to a counter-indemnity only.

What happens to the bond when the project finishes? add

It is released once the project owner confirms the contractor has met its obligations, typically at practical completion or at the end of the defects liability period if the bond extends that far.

Need a performance bond for a tender?

Send us the tender document and contract sum. We will confirm the security required and place the bond with the right insurer.

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