Performance bond

Performance bond

A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.

A job requiring a payment & performance bond will usually require a bid bond, to bid the job. When the job is awarded to the winning bid, a payment and performance bond will then be required as a security to the job completion.

For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.

Performance bonds are commonly used in the construction and development of real property,[1] where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor). In other cases, a performance bond may be requested to be issued in other large contracts besides civil construction projects.

The term is also used to denote a collateral deposit of "good faith money",[2] intended to secure a futures contract, commonly known as margin.[3]

Performance bonds are generally issued as part of a 'Performance and Payment Bond',[4] where a Payment Bond guarantees that the contractor will pay the labour and material costs they are obliged to.

Under the Miller Act of 1932, all Construction Contracts issued by the Federal Government must be backed by [5]Performance and Payment Bonds. States have enacted what is referred to as “Little Miller Act” statutes requiring Performance and Payment bonds on State Funded projects as well.

Performance bonds have been around since 2,750 BC and the Romans developed laws of surety around 150 AD,[6] the principles of which still exist.

See also


External links

Wikimedia Foundation. 2010.

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Look at other dictionaries:

  • performance bond — see bond 1a Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. performance bond n …   Law dictionary

  • performance bond — A type of insurance purchased by a builder that protects both the bank and the owner by providing that the insurance company will be responsible for completing construction if the contractor fails to do so. American Banker Glossary A surety bond… …   Financial and business terms

  • performance bond call — 1 A request from a brokerage firm to a customer to bring performance bond deposits up to minimum levels. 2 A request by CME Clearing to a clearing firm to bring clearing performance bonds back to levels required by the Exchange Rules. Most… …   Financial and business terms

  • performance bond — A type of contractors bond; a bond which guarantees that the contractor will perform the contract, and usually provides that if the contractor defaults and fails to complete the contract, the surety can itself complete the contract or pay damages …   Ballentine's law dictionary

  • performance bond — noun a bond given to protect the recipient against loss in case the terms of a contract are not filled; a surety company assumes liability for nonperformance • Syn: ↑surety bond • Hypernyms: ↑bond, ↑bond certificate …   Useful english dictionary

  • performance bond — noun A contractors bond, guaranteeing that the contractor will perform the contract and providing that, in the event of default, the surety may complete the contract or pay damages up to the bond limit …   Wiktionary

  • Performance Bond — A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. For example, a contractor may issue a bond to a client for whom a building is being constructed. If the… …   Investment dictionary

  • performance bond. — See contract bond. [1935 40] * * * …   Universalium

  • performance bond — noun a bond issued by a bank or other financial institution, guaranteeing the fulfilment of a particular contract …   English new terms dictionary

  • performance bond — A guarantee given to customers in some industries that goods will be delivered to a specific standard. The bond is normally given by a company s bankers, who are indemnified by the company …   Accounting dictionary

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