What is performance bond?
Related Content. Also known as performance guarantee. A bond designed to ensure that the seller delivers goods or performs services in accordance with the terms of the contract and at the agreed time.
Who is a performance bond intended to protect?
A performance bond is intended for the protection of the owner (or of the contractor, if dealing with a performance bond provided by a subcontractor). A performance bond is different from a payment bond in that a performance bond is not intended to protect unpaid subcontractors or suppliers.
When would you use a performance bond?
Performance bonds are usually required for government-related projects such as building a bridge or for road constructions. They are common for private sector construction projects as well. The performance bond protects against a contractor failing to deliver the work as specified in the contract.
How much is a performance bond?
A performance bond is a bond that guarantees that the bonded contractor will perform its obligations under the contract in accordance with the contract’s terms and conditions. Performance bonds are typically in the amount of 50% of the contract amount, but can also be issued for 100% of the contract amount.
Should I get a performance bond?
Should I get a performance bond? With a Performance Bond, you can be sure to have the money when your project is complete. Construction companies are always looking for new clients and this bond will make them marketable with peace of mind knowing that their company has been properly insured against potential default.
What is a 50/50 performance bond?
Performance Bond: a performance bond is a surety instrument that guarantees the performance of construction works outlined in a contract that has been awarded to a contractor. These bonds are conventionally in the amount of fifty percent (50%), but can be up to 100% of the contract price.
How do you get a performance bond?
In order to get a performance bond, contractors must usually pay a premium on the bond amount as well as interest on the bond. Again, the price will depend on the cost of the bond and the risk (creditworthiness) the principal presents. In most cases, you will first need to obtain a bid bond before bidding on a project.
How much is performance bond cost?
The cost of a performance bond usually is less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Bonds may be more costly, depending upon the credit-worthiness of the contractor. Labor and material payment bonds are companions to the performance bond.
How do you buy performance bonds?
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