What is a ‘Performance Bond’

(PB)?

Contractors are required to be approved for a surety

bond facility in order to bid on and to complete most

public or government jobs.

There are three types of bonds 1) Construction Bonds

2) Payment Bonds and last 3) Performance Bond.

Now let’s discuss about performance bond in this

article.

What is a ‘Performance Bond’ (PB)?

A performance bond, also known as a contract

bond that is written by a third-party guarantor,

bank or other financial institution that guarantees

the fulfillment of a particular contract as promised.

Performance Bonds guarantee that the contractor

will perform the contract as agreed. Performance

bonds are important financial instruments to

participants of building and construction projects.

The one and important reason why this

performance bond is produced is so that the

customer can be paid a specified amount of

money if the contractor fails to perform or is

unable to deliver the project as per established

and the contract provisions.

Banks also recovers the payment on behalf of

the customer if the contractor fails to deliver the

contract in full. This type of bond can be on

conditional or on demand.

Performance bond rates vary for a number of

reasons, including the project’s total cost and

the contractor’s credit and financial history.

How does Performance Bond Work?

As soon as a contractor gets a project from a client,

they offer performance bond to act as protection

against failure to deliver on their part.

A third-party guarantor is involved to hold the

contractor accountable for finishing the entire project

as per their agreement with the customer.

Advantages of Performance bonds for

Owners

•Owners do not need to incur additional costs.

•The owner of a project is assured of the

completion of the project.

•Performance Bond allows owners to retain

their working capital.