Common Performance Bond Questions
What is a Performance Bond?
A performance bond is a type of surety bond that guarantees a contractor will complete a project as agreed upon between them, the surety and the entity that hired the contractor.
How Does a Performance Bond Work?
The principal (in this case, the contractor) enters a surety agreement with the obligee (the businessowner) and the surety. If the contractor cannot finish the project as promised by the performance bond, the surety will complete the project in their stead.
What Does a Performance Bond Cost?
The cost of a performance bond depends on the project, credit score and claims history of the principal and the percentage of the bond as determined by the surety. For example, if the performance bond is for $200,000 and the surety says you must pay 1% of that, you will pay $2,000.
Is a Performance Bond Refundable?
Typically, a performance bond is not refundable. However, if the bond was never submitted to the obligee, you may be able to return the bond for a full or partial refund.
Why Should I Get a Performance Bond?
A performance bond is often required by local, state and federal governments to guarantee they are covered. Any entity wishing to hire a contractor should consider requiring a performance bond to ensure the job will be completed. As a contractor, you will likely need a performance bond to work on certain large-scale projects.