Performance Bonds
A performance bond is a type of surety bond that is commonly required in construction contracts. The purpose of the bond is to protect the owner from financial loss if the contractor fails to perform the work as specified in the contract.
The surety company that issues the bond agrees to pay the owner if the contractor defaults on the contract. The payment is intended to cover any losses incurred by the owner as a result of the contractor’s default, up to the amount of the bond.
Performance bonds are often required for public works projects, since there is a higher risk that contractors will not perform as required. For private projects, performance bonds may be required if the owner perceives a high risk of default.