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, 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", intended to secure a futures contract, commonly known as margin.
Performance bonds are generally issued as part of a 'Performance and Payment Bond', 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 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, the principles of which still exist.
Famous quotes containing the words performance and/or bond:
“The value of old age depends upon the person who reaches it. To some men of early performance it is useless. To others, who are late to develop, it just enables them to finish the job.”
—Thomas Hardy (1840–1928)
“The ideal of men and women sharing equally in parenting and working is a vision still. What would it be like if women and men were less different from each other, if our worlds were not so foreign? A male friend who shares daily parenting told me that he knows at his very core what his wife’s loving for their daughter feels like, and that this knowing creates a stronger bond between them.”
—Anonymous Mother. Ourselves and Our Children, by Boston Women’s Health Book Collective, ch. 6 (1978)