What Is a Performance Bond?
A performance bond is a type of contract construction bond that guarantees a contractor will complete a project according to the terms outlined in a contract by the project owner, also called the obligee. The obligee can be a city, state, or local government, as well as the federal government or a private developer. One reason these bonds are often required for public projects is to ensure hired contractors are financially and professionally capable of completing the projects they bid on. Surety bond companies that are willing to bond a particular company for a project are, in essence, vetting the contractors capability of completing the specified project on behalf of the project owner.
A construction performance bond is required on federal government construction projects exceeding $100,000 as a result of the Miller Act of 1934. Prior to this, it was common for contractors to intentionally underbid government contracts in order to be awarded projects with the intent of not completing the work unless the contract price was increased after the fact. Since there were no bond penalties in place to prevent this, obligee’s were essentially held at ransom. They could pay the increased financial demand or fire the contractor and rebid the project, only to have the same problem repeat with the new company. Performance bonds solve this issue.
What are performance bonds used for?
When a developer wants to protect the investment made in a venture, the contractor that won the bid is required to provide a performance bond before work can begin. If the contractor fails to complete the project based on the previously agreed upon contract, the project owner can file a claim on the performance bond. If the claim is found to be valid, the surety company that issued the performance bond will make sure the contractor compensates the harmed party.
Performance bonds are often issued in conjunction with payment bonds, and together they are among the most common construction bonds in the industry. To get a free, no-obligation quote for your performance bond, apply online or give one of our performance bond experts a call at (480) 830-1800
Get Your Performance Bond Fast and For a Low Rate
Your premium will vary for a number of reasons including the project’s bid amount, your financial credentials and your past work history.
Qualified contractors who work with SuretyBonds.com typically pay a rate that’s just 2.5%-3% of the performance bond amount. This means if you’ve been contracted for a $100,000 project, you could pay just $2,500 to $3,000 for your performance bond.
How to Apply for Your Bond Today!
Standard application questions for performance bonds include:
- How much is your bid?
- When is the bid date?
- Have you ever been bonded before?
- How long has your company been in existence?
- What is your personal credit score?
If your project will be contracted for more than $250,000, you’ll have to provide additional financial credentials when submitting your application. Once financial records have been reviewed, the application has been approved and payment has been received, your underwriter will issue the bond. Apply for your bond now!