A Guide about How Performance Bond Works

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A Performance Bond is a written assurance that the project will be completed as per the terms of the contract. The parties involved in this type of bond include:

  • Principal: Principal is the person who is performing the work
  • Obligee: The person who is protected by the bond
  • Surety: The company that issues the bond

The obligee requires the principal to obtain a performance bond to ensure that the project will be accomplished within the contact guidelines, including the budget and specified time period. If the contractor completes the project by adhering to the guidelines of the contact, the performance bond becomes null and void. On the other hand, if the contract fails to comply with the guidelines of the contract, the obligee can file a claim against the performance bond.

When a claim is raised by the project owner, the surety company will investigate the matter and determine whether the claim is valid or not. If it is valid, the surety will make sure that the project owner will not incur any lose. The company will either pay the money to the project owner or will hire a new contractor to complete the project.