A performance bond is a third-party guarantee (typically from a bank or insurer) that pays an employer if a contractor fails to perform. Bonds are either conditional (requiring proof of breach and loss) or on-demand (triggered by a compliant demand alone). They are usually set at 10% of the contract sum and run until practical completion, sitting alongside parent company guarantees and collateral warranties as standard construction security.<\/p>\n\n\n\n
A performance bond is a contract. A surety issues it in your favour as a financial guarantee, and that surety is usually a bank, an insurer or a specialist surety provider. Your contractor arranges the bond and pays the premium, though you tend to pay for it indirectly, because the cost is built into the contract price.<\/p>\n\n\n\n
What the bond does is give you access to funds if your contractor defaults. The bond wording sets out what counts as default, which might be non-performance, delay or insolvency. On a higher-risk project you might ask for more than one bond, or for other security alongside it. How easily you can actually get at the money depends on how the bond is drafted and what it was meant to do.<\/p>\n\n\n\n
A performance bond is one part of a wider category called performance security. That category also covers guarantees, indemnities and other instruments that help manage the risk of a contractor not performing.<\/p>\n<\/div>\n\n\n\n
The main thing a bond gives you is financial reassurance. If your contractor cannot deliver, you may have to spend heavily to bring in a replacement or put right work that was not good enough. Without a bond, those costs land on you straight away, and getting the money back from the contractor can mean slow and uncertain legal proceedings. A bond keeps the project moving by giving you funds you can actually reach. It also lets you, your developers and your funders carry on, knowing a contractor failure is less likely to derail the project or turn into a building dispute<\/a>.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n