Definition: Commitments made by the contractor regarding the expected performance standards of the completed project, often including penalties for non-compliance.
Key Components:
- Specified Metrics: Defined performance criteria (e.g., efficiency levels).
- Testing Procedures: Methods to verify compliance.
- Remedial Actions: Steps to address deficiencies.
Use Cases/Industries:
- Power Generation Facilities: Guaranteeing output capacity and efficiency.
- Industrial Plants: Ensuring production rates meet contractual obligations.
Advantages:
- Quality Assurance: Holds contractors accountable for delivering specified standards.
- Risk Mitigation: Protects owners from subpar performance.
Challenges:
- Defining Realistic Metrics: Setting achievable and measurable standards.
- Enforcement: Implementing penalties or corrective measures can be contentious.
Related Terms: Warranty Provisions, Service Level Agreements
Example:
An EPC contractor for a combined-cycle power plant provides a performance guarantee that the plant will achieve 60% thermal efficiency and meet specific emissions limits. If the plant fails to reach these benchmarks, the contractor must implement corrective measures or pay penalties.
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Synonyms:
Performance Bonds, Warranty Clauses
