Performance Bond (Nigeria)
PERFORMANCE BOND
Public Procurement Act 2007 | Stamp Duties Act (Cap S8, LFN 2004) | Banks and Other Financial Institutions Act (BOFIA) 2020
THIS PERFORMANCE BOND is issued on [Bond Date]
BY:
[Surety Name] of [Surety Address] (the "Surety")
ON BEHALF OF:
[Principal Name] (RC: [Principal CAC]) of [Principal Address] (the "Principal")
IN FAVOUR OF:
[Beneficiary Name] of [Beneficiary Address] (the "Beneficiary")
RECITALS
A. The Principal has entered into a contract with the Beneficiary entitled "[Contract Title]" (Contract Reference: [Contract Reference], dated [Contract Date]) for a contract sum of [Contract Sum] (the "Contract").
B. The Beneficiary has required the Principal, as a condition of the Contract, to procure this Performance Bond from the Surety in favour of the Beneficiary.
C. At the request of the Principal, the Surety has agreed to issue this Performance Bond on the terms set out below.
SURETY'S UNDERTAKING
1. The Surety unconditionally and irrevocably undertakes to pay to the Beneficiary, on demand, any sum or sums not exceeding in aggregate [Bond Amount] (the "Bond Amount"), subject to the terms of this Bond.
2. This Bond is a [Bond Type]. The Surety's liability under this Bond is limited to the Bond Amount and does not extend to consequential losses, liquidated damages, or any other amounts under the Contract beyond the Bond Amount.
3. The Surety's obligation under this Bond is independent of the Principal's obligations under the Contract. The Surety may not raise as a defence any claim, set-off, or counterclaim that the Principal may have against the Beneficiary under or in connection with the Contract.
DEMAND PROCEDURE
4. To make a demand under this Bond, the Beneficiary shall deliver to the Surety a written demand signed by a duly authorised officer of the Beneficiary, stating that the Principal is in default of its obligations under the Contract and specifying the amount demanded (which shall not exceed the Bond Amount).
5. The Surety shall pay the demanded amount within 5 business days of receiving a compliant demand, without requiring the Beneficiary to take legal proceedings against the Principal or any other person.
EXPIRY AND GOVERNING LAW
6. This Bond expires on [Expiry Date]. No demand may be made under this Bond after the expiry date, unless a demand has already been made and is outstanding on that date.
7. This Bond is governed by Nigerian law. Any dispute arising under this Bond shall be subject to the exclusive jurisdiction of the Federal High Court of Nigeria or, if agreed by the parties, arbitration under the Arbitration and Conciliation Act (Cap A18, LFN 2004).
8. This Bond must be duly stamped under the Stamp Duties Act (Cap S8, LFN 2004) to be admissible as evidence in Nigerian courts.
Surety – Authorised Signatory
________________
Signature
Principal – Authorised Signatory
________________
Signature
What Is a Performance Bond (Nigeria)?
A Performance Bond in Nigeria captures the structured information needed to complete the process it supports.
The Public Procurement Act 2007, administered by the Bureau of Public Procurement (BPP), requires performance bonds for most federal government procurement contracts above the specified thresholds. Section 16(6) of the Public Procurement Act 2007 mandates that bidders for government contracts submit performance bonds as part of the contract execution process. The BPP's standard bidding documents (SBDs) specify the required bond amount — typically 5% to 10% of the contract sum — and the format for the bond.
Performance bonds in Nigeria are governed by contract law principles as developed by the Nigerian courts. The Court of Appeal of Nigeria has applied the English principle that a demand guarantee is payable on a compliant demand and that the surety cannot rely on defences available to the principal contractor under the underlying contract (the principle of independence of the bond). This principle was affirmed in Afrobank (Nigeria) Plc v The Incorporated Trustees of Anglican Church of Nigeria (2004) where the court upheld the demand nature of a bank guarantee.
A Performance Bond differs from a Bid Bond (which guarantees that a tenderer will sign the contract if awarded) and from a Payment Guarantee Bond (which guarantees payment of a financial obligation). A Performance Bond specifically secures the quality and completion of contractual work or supply obligations. In construction contracts under the Joint Contract Tribunal (JCT) standard forms adapted for Nigeria or the FIDIC form used by international donors, performance bonds are a standard requirement.
The legal framework governing the Performance Bond (Nigeria) in Nigeria draws on several key statutes and regulatory bodies. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Parties executing a Performance Bond (Nigeria) in Nigeria should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Companies and Allied Matters Act (CAMA) 2020 sets the foundational requirements.
When Do You Need a Performance Bond (Nigeria)?
A Performance Bond in Nigeria is needed whenever an employer requires security for a contractor's performance obligations under a construction, supply, or service contract.
A Performance Bond is required when a federal government ministry, department, or agency awards a construction or procurement contract under the Public Procurement Act 2007. Section 16(6) of the Act and the BPP standard bidding documents require the successful tenderer to provide a performance bond before contract commencement.
A Performance Bond is needed when a private sector developer or oil company in Nigeria awards a large construction contract to a building or civil engineering contractor and wishes to protect against the financial consequences of contractor default, including the cost of engaging a replacement contractor and delay damages.
A Performance Bond is required when a state government in Lagos, Rivers, Ogun, or Abuja FCT awards road, bridge, school, or hospital construction contracts under the applicable state public procurement law, as most state procurement laws mirror the federal Public Procurement Act 2007 in requiring performance security.
A Performance Bond is needed when an international supplier or technology vendor is awarded a supply contract by a Nigerian institution and the purchaser requires a bank guarantee from a CBN-licensed bank as security for the supplier's obligation to deliver goods of the specified quality and quantity within the agreed timeframe.
Parties in Nigeria should prepare a Performance Bond (Nigeria) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Performance Bond (Nigeria)
A valid Performance Bond in Nigeria must contain the following essential elements to be enforceable and to satisfy the BPP standard bidding document requirements.
Parties: The surety (the CBN-licensed bank or NAICOM-licensed insurer issuing the bond), the principal (the contractor), and the beneficiary (the employer or project owner). For corporate parties, include the CAC RC number under CAMA 2020.
Bond Amount: The guaranteed sum, typically stated as a percentage of the contract sum (5% to 10%) or a specific NGN amount. The bond amount represents the surety's maximum liability under the instrument.
Underlying Contract: A reference to the contract whose performance is being guaranteed — the contract title, reference number, and date. The bond must be linked to a specific contract to be meaningful.
Performance Obligation: A description of the contractor's principal obligations under the contract, or a general reference to 'faithful performance of all the contractor's obligations under the Contract'.
Demand Conditions: Whether the bond is payable on first written demand (unconditional) or only upon evidence of the contractor's default (conditional). Most Nigerian government procurement bonds are demand bonds.
Expiry Date: The date on which the bond expires. For construction contracts, the bond typically expires 28 days after the issue of the final certificate or the defects liability period, as defined in the construction contract.
Governing Law: Confirmation that the bond is governed by Nigerian law and the jurisdiction of the Nigerian courts or arbitration.
Stamp Duty: The bond must be duly stamped under the Stamp Duties Act (Cap S8, LFN 2004) to be admissible in evidence.
Additional compliance elements for a Performance Bond (Nigeria) used in Nigeria include: Under Nigerian law, the Companies and Allied Matters Act 2020 (CAMA) regulates corporate entities through the Corporate Affairs Commission (CAC). The Labour Act (Cap L1 LFN 2004) and the National Industrial Court of Nigeria (NICN) govern employment disputes. The Nigeria Data Protection Regulation (NDPR) 2019 and the Nigeria Data Protection Commission (NDPC) protect personal data. The Federal Inland Revenue Service (FIRS) administers tax obligations under the Companies Income Tax Act. The Federal High Court and state High Courts have jurisdiction over civil matters. Forms-legal.com provides this template as a starting point for Nigeria-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Performance Bond (Nigeria) (Nigeria) [Legal document template]. Forms Legal. https://forms-legal.com/nigeria/business/contracts/performance-bond-nigeria
"Performance Bond (Nigeria) (Nigeria)." Forms Legal, 2026, https://forms-legal.com/nigeria/business/contracts/performance-bond-nigeria.
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title = {Performance Bond (Nigeria) (Nigeria)},
year = {2026},
howpublished = {\url{https://forms-legal.com/nigeria/business/contracts/performance-bond-nigeria}},
note = {Free legal document template. Based on Companies and Allied Matters Act (CAMA) 2020}
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Frequently Asked Questions
Under the Bureau of Public Procurement (BPP) standard bidding documents for federal government contracts in Nigeria under the Public Procurement Act 2007, the performance bond is typically set at 10% of the contract sum. For state government contracts, the applicable state public procurement law and procurement guidelines determine the bond percentage — common practice in Lagos State, Rivers State, and Abuja FCT sets the bond at 5% to 10%. For private sector construction contracts, the bond percentage is negotiated between the employer and contractor and depends on the risk profile of the project, the contractor's financial standing, and the contract value. International development-financed projects — such as those funded by the World Bank, African Development Bank (AfDB), or the International Finance Corporation (IFC) — typically follow their own procurement guidelines, which may specify different bond percentages.
An employer in Nigeria can call a performance bond when the contractor has materially defaulted on their contractual obligations — for example, by abandoning the site, persistently failing to meet the agreed programme of works, delivering non-conforming goods or works, or becoming insolvent. For an unconditional demand bond, the employer simply presents a written demand to the surety stating that the contractor is in default, and the surety pays without requiring proof of the default. For a conditional bond, the employer must produce specified evidence of the contractor's default — such as a notice of termination or an engineer's certificate — before the surety is obliged to pay. Nigerian courts have upheld calls on performance bonds where the demand was compliant with the bond's terms, and have prevented fraudulent calls where the employer sought to call the bond without any genuine default.
A contractor in Nigeria can challenge a call on a performance bond in limited circumstances before the Federal High Court or State High Court. The principal grounds for challenging a call are: (1) fraud by the beneficiary — where the employer is calling the bond in bad faith with no genuine default; and (2) the demand does not comply with the bond's formal requirements, for example because it was made after the expiry date or not in the prescribed form. Nigerian courts apply the English principle that the grounds for restraining payment under a demand guarantee are very narrow — the 'fraud exception' is the primary ground. The contractor cannot enjoin payment merely because they dispute the underlying contract claim. The contractor's remedy for an improper call is to pursue the employer for damages in separate proceedings after the surety has paid.
A Performance Bond and a Retention are both security mechanisms in Nigerian construction contracts, but they operate differently. A Performance Bond is an obligation of a third-party surety (a bank or insurance company) to pay the employer up to the bond amount if the contractor defaults. It is off-balance sheet for the contractor — the contractor pays the surety a premium but does not set aside cash. A Retention, by contrast, is a percentage (typically 5%) of each interim payment certificate that the employer withholds from the contractor during the construction period, retaining it as security against defective work. The retained amount is held by the employer, not a third party. Half the retention is typically released at practical completion and the balance at the end of the defects liability period. Some contracts allow a contractor to substitute a retention bond (issued by a bank) for the cash retention, freeing up working capital.
Yes. A Performance Bond issued in Nigeria must be duly stamped under the Stamp Duties Act (Cap S8, Laws of the Federation of Nigeria 2004) to be admissible in evidence in any Nigerian court. The Finance Act 2020 extended stamp duty to a wider range of commercial instruments, including guarantees and bonds. The applicable stamp duty rate for guarantees and indemnities is prescribed by the FIRS (for instruments involving companies) or the relevant state internal revenue service (for instruments between individuals). An unstamped performance bond is inadmissible in evidence under Section 22 of the Stamp Duties Act without the court's leave. The BPP's standard bidding documents for federal government contracts require that performance bonds be properly stamped before they are accepted by the procuring entity. Banks and insurance companies in Nigeria typically arrange stamping of bonds they issue as part of their bond issuance service.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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