Performance Bond

A performance bond is a surety bond issued by a Surety Company to guarantee satisfactory completion of a project by a Contractor. Construction Bonding is the most common type of performance bond and is often written in conjunction with a payment bond.

For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to complete the contract the client (referred to as the obligee) is guaranteed the successful completion of the project.

Furthermore the payment bond often provided at no additional charge to the Performance Bond provides protection to the subcontractors and suppliers on a project guaranteeing a lien free project for the obligee. Performance Payment bonds are often required of Sub contractors as well, providing protection to the General Contractor. Subcontractor Performance Bonds shift much of the inherit risk from the General Contractor to the subcontractor. The Sub Contractor Payment bond protects the General contractor from having to pay for materials and supplies twice.

Performance bonds are commonly used in the construction and development of real property where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor). In other cases, a performance bond may be requested to be issued in other large contracts.

Under the Miller Act of 1932, all Construction Contracts issued by the Federal Government must be backed by Performance and Payment Bonds. States have enacted what is referred to as “Baby Miller Act” statutes requiring Performance and Payment bonds on State Funded projects as well.

California Performance Bonds are required on all State contracts in excess of $100,000., however, Payment bonds are required on all contracts in excess of $25,000.

Nevada Performance Bonds are required on all contracts in excess of $100,000. Additionally Subcontract Performance bonds are required on sub contracts in excess of $100,000 in addition to the Performance and Payment Bonds issued on behalf of the general contractor.

Texas Performance Bonds are required on State contracts in excess of $100,000

Oregon Performance Bonds are required on state contracts in excess of $100,000, except for Oregon D.O.T. contracts where Performance and Payment Bonds are required on contracts in excess of $50,000.

Arizona Performance Bonds are required on all state contracts of $50,000 or more.