Performance Bonds

What is a Performance Bond?

Performance bonds provide legal and financial protection for those involved in construction projects.

When working on a construction project, the contractor secures this bond to guarantee their work and performance under their contract to whomever requests the bond (called an obligee), which is usually the owner, often a government entity, sometimes the owner’s lender, and rarely a prime contractor.

Surety bonds assure owners of project completion because a capable contractor, one who qualifies for a performance bond is unlikely to default on a project. If a contractor fails to complete a project, the surety bond guarantees compensation for any monetary loss up to the amount of the performance bond

Performance Bond vs. Payment Bond

A performance bond is different from a payment bond as it ensures the job will be completed correctly. A performance bond and payment bond are almost always both required. We normally package a performance and payment bond together so you will only pay one rate for both.

Stand-alone performance or payment bond are sometimes required, but not very often. Whether your contract requires a Performance Bond, Payment Bond, or a Payment and Performance Bond together, the premium rate does not change.

How Much Does a Performance Bond Cost?

Performance bond rates vary for a number of reasons, including the project’s total cost and the contractor’s credit and financial history.

Contractors with good credit and financial history can expect to pay a fee in the amount of .5% to 5% of the bond’s full value to get the bond. If a contractor fails to qualify for a normal bond, special bonds for those with less than ideal credit can be purchased for a considerably higher fee.