What Do You Understand by Performance Bond?

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The infographic titled, “What are Performance Bonds”, talks about the basics of performance bonds, procedure to get a performance bond and the facts about performance bonds. It also describes the different ways, a bond claim can hurt. Performance bonds or contract bonds are a type of surety bond that are generally issued by a bank or insurance company to assure the satisfactory completion of a project by a contractor. Please go through the given infographic to know more about performance bonds.

What Do You Understand by Performance Bond?



An Understanding of Different Kinds of Surety Bonds

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Surety bond, also known as guarantee bond or fidelity bond is basically a promise that the third party (insurance company or a bank) will pay the specific amount if someone (principal or contractor) fails to perform the project as per the guidelines of the project. It is generally categorized into 3 main categories:

Contract Bonds: Contract bonds are the guarantee that the contractor will perform the job as per the specifications of a construction contract. It also assures that the contractor will pay the specified amount to the subcontractors, material suppliers and the laborers involved in the project.

Court Bonds: As the name suggests, court bonds are required by courts in the course of cases. These bonds can be further divided into- fiduciary bonds and judicial bonds. The cost of these bonds may vary depending on the type of bond, case and the place.

Commercial Bonds: These types of bonds are usually purchased by companies or working professionals for the purposes unrelated to legal issues, contract projects or other contracted jobs. Different types of commercial surety bonds include business service bond, employee theft bond, alcohol tax bond, license and permit bond, sales tax bond, utility bonds, etc.

Whatever type of surety bond it is, it still the owner that their project will be protected from loss due to your failure to comply with the bond.

Things to Know About a Surety Bonding Company

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Are you seeking a particular kind of bond in America? These days, there are a number of companies in America offering customized surety programs as per the specific needs of their customers. The number of surety bonds that are widely in demand include bid, performance and payment bonds, construction materials supply bonds, court bonds – judicial, fiduciary and probate, depository bonds, licenses and permits bonds, utilities bonds, miscellaneous bonds, etc.

Whatever your requirement or size of the project is, you’ll find a number of companies offering the bonds. However, when selecting a particular surety bonding company in America, make sure to find all the essential information about the company such as:

  • Make sure that the surety company or the bond broker is properly licensed and comply with all state and federal regulations

  • Ensure that all the licenses are valid and active

  • Evaluate the image of the surety company in the market

  • The surety company must possess an in depth knowledge of the surety industry

  • Ask the surety bonding company about what screening they perform on contractors

  • Also, ask about their premium rates that they charge for underwriting the contractor and project

A reputed and reliable surety bonding company can respond quickly to all your bond needs.

Are You Aware of Different bonds in Construction Contracts?

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A sound financing and reliable contractor is what the owners of the construction project need these days. Construction bonds or contract bonds are basically a type of surety bond, which is required to protect the owner of the project against monetary loss in case of non-performance or another party (contractor). These bonds are generally issued by an insurance company or a bank, also known as Surety Company, as a guarantee that the project will be completed by the specific contractor as per the plans and specifications of the construction project. In the event of default and termination of the contractor, the surety will ensure the project is completed.

The different kinds of bonds in construction contracts are:

Bid bond: It is a guarantee to the owner of the project that the job will be performed at the bid amount. In case the bid is not honored by the contractor, a claim can be raised against the bid bond.

Performance bond: It guarantees that the contractor will complete the contract as per its terms within the specified period of time. It the contractor fails to do so, the owner may call upon the surety to hand over the contract to a new contractor or to pay the costs to complete the contract.

Payment bond: It guarantees that all the payments that are due to the sub-contractors, suppliers and others will be paid on behalf of the contractor.

A better understanding of all these bonds is a must, especially if you are working in a construction industry.