A Performance Bond protects the owner of a construction project from contractors that may not fulfill their contractual obligations.
The bond is a legal contract between three parties: the project owner (the obligee), the contractor (the principal), and the surety company. The bond guarantees that a contractor will faithfully perform all duties set forth in the contract. Contractual obligations can include a time schedule for completing the project, a budget, a description of work to be done, and correcting defective work.
If the contractor fails his obligations, then the project owner may submit a claim on the bond to the surety company. If the surety finds that the contractor is at fault, then the surety assumes responsibility and will see that the project is completed. The contractor is then obligated to reimburse the surety for the work done.
Because the surety assumes responsibility when a contractor fails to fulfill his obligations, the surety company wants to make sure the contractor is a low risk before issuing a bond in the first place. Contractors will need to provide the surety information such as financial statements, business information, references, tax returns, a business plan, a bank reference letter, and a job cost breakdown. Underwriters analyze the information to determine if the contractor qualifies for the bond, what the premium will be, and if there are any other factors that increase the risk. The underwriter then approves or denies the bond application. If approved, the underwriter determines terms of the approval, which includes the premium to be charged.
A Performance Bond is usually issued in conjunction with a Payment Bond, which guarantees that laborers, subcontractors, and suppliers get paid. They are often referred to as a single bond, a Payment and Performance Bond.
Why Do I Need a Performance Bond?
The contract process usually starts with bidding, where contractors bid on a specific project. A Bid Bond may be required before a contractor can submit a bid, which guarantees that the contractor will be able to obtain necessary Payment and Performance bonds if they are awarded the bid. A Bid Bond also assures that only capable bidders enter the bidding process.
The contractor who is awarded the bid may need to secure a performance bond to ensure that the project is completed according to the contract.
How Do I Get a Performance Bond?
SuretyGroup.com writes all contract bonds for the construction industry.
The bond process includes going through underwriting, in which an underwriter will review business financial statements, work on hand, references, experience in the industry, availability of equipment and manpower needed to complete the work and other factors that may be applicable to the particular project being awarded. SuretyGroup.com has bond programs in place for Payment and Performance Bonds for all contract sizes and classes of business.
Our Traditional Bond Kit is for contractors looking to get set up for bid, payment and performance bonds. You can also use our Bond Kit if you are interested in the SBA's Surety Bond Guarantee Program for federal government contractors.
What Does a Performance Bond Cost?
The premium amount that a contractor pays for a Performance Bond varies based on the amount of the contract, work on hand, experience, business financial statements, and other criteria. Contact the Surety Bond Specialists at SuretyGroup.com for a free quote that fits your specific needs.
Also, ask us about our free bid bonds.
Are You an Existing Client?
You will need these items to request a bid bond:
Did You Know?
Contract Surety Bonds are often required by the federal government, local municipalities, counties, universities or private entities.
Related LinksSBA Surety Bond Guarantee Program
More Surety Bond Questions?
Check out our FAQ page or What’s a Surety Bond? page. Should you need or choose to buy a surety bond, buy from us. SuretyGroup.com has been underwriting surety bonds throughout the U.S. for more than 35 years. When you work with us, you enjoy the unique benefit of dealing with a team of highly experienced surety agents with in-house underwriting authority. This allows you to receive competitive, low rates, quick approvals, and immediate bond delivery. In most cases, your bond will be delivered within 24 hours after you apply for it.
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