What is a ‘Performance Bond’ (PB)? : It is a type of a bond issued by a bank or other financial institution, guaranteeing the fulfilment of a particular contract.

1. What is a ‘Performance Bond’
(PB)?

2. Contractors are required to be approved for a surety
bond facility in order to bid on and to complete most
public or government jobs.
There are three types of bonds 1) Construction Bonds
2) Payment Bonds and last 3) Performance Bond.
Now let’s discuss about performance bond in this
article.

4. What is a ‘Performance Bond’ (PB)?
A performance bond, also known as a contract
bond that is written by a third-party guarantor,
bank or other financial institution that guarantees
the fulfillment of a particular contract as promised.
Performance Bonds guarantee that the contractor
will perform the contract as agreed. Performance
bonds are important financial instruments to
participants of building and construction projects.

5. The one and important reason why this
performance bond is produced is so that the
customer can be paid a specified amount of
money if the contractor fails to perform or is
unable to deliver the project as per established
and the contract provisions.
Banks also recovers the payment on behalf of
the customer if the contractor fails to deliver the
contract in full. This type of bond can be on
conditional or on demand.

6. Performance bond rates vary for a number of
reasons, including the project’s total cost and
the contractor’s credit and financial history.
How does Performance Bond Work?
As soon as a contractor gets a project from a client,
they offer performance bond to act as protection
against failure to deliver on their part.
A third-party guarantor is involved to hold the
contractor accountable for finishing the entire project
as per their agreement with the customer.

8. Advantages of Performance bonds for
Owners
•Owners do not need to incur additional costs.
•The owner of a project is assured of the
completion of the project.
•Performance Bond allows owners to retain
their working capital.