Construction Performance Bonds for Contractors

Contract Completion Protection for Public and Private Construction Projects

A construction performance bond supports a contractor’s obligation to perform and complete a bonded contract according to its terms. It protects the project owner or other named obligee against covered losses resulting from contractor default, subject to the bond form, contract and applicable law.

Need a performance bond after contract award? Call (949) 258-9800 with the proposed contract, required bond form, award amount, project owner, scope, location, start date and prior bid-bond information.

What Is a Construction Performance Bond?

A performance bond is a three-party surety agreement among the contractor as principal, the project owner or other protected party as obligee and the surety issuing the bond. It is normally furnished after award and before the contractor begins work or receives payment.

The performance bond is not a promise that every disagreement, delay or project cost is automatically covered. The exact bond form, incorporated contract, default provisions, notices and claim circumstances determine the surety’s obligation.

The Parties to a Performance Bond

What Does a Performance Bond Guarantee?

Coverage depends on the bond form and incorporated contract. A performance bond may support obligations involving:

• Completion of the bonded work according to the contract
• Compliance with covered plans, specifications and schedule requirements
• Correction of covered defective or nonconforming work
• Specified warranty or maintenance duties incorporated into the obligation
• Other performance responsibilities expressly covered by the bond and contract

The bond’s penal sum generally limits the surety’s financial exposure, but the scope of covered loss and available remedies depends on the documents and facts. Owners and contractors should avoid describing the bond as general project insurance.

Where the Performance Bond Fits in the Contract-Bond Process

Performance and payment bonds are commonly issued together and often for the same contract amount, but one does not replace the other. The performance bond protects the obligee’s completion interest; the payment bond addresses covered labor and material payment obligations.

Public and Private Construction Projects

Performance bonds are widely required on public construction under applicable federal, state or local law and procurement rules. The public owner uses the bond to reduce the financial risk associated with a contractor’s covered failure to complete the awarded work.

Private owners, lenders, developers and general contractors may also require performance bonds for commercial buildings, residential developments, infrastructure and subcontracted scopes. Private forms can differ significantly, so the surety should review the proposed contract and bond language before the contractor accepts the obligation.

Information Needed for Performance-Bond Underwriting

• The exact performance-bond form and any related payment-bond form
• Project name, location, owner or obligee and contract number
• Contract amount, scope, duration and anticipated start date
• The signed or proposed contract and any previously issued bid bond
• Schedule, liquidated damages, warranties and other unusual provisions
• The contractor’s financial statements and current work-in-progress schedule
• Relevant project experience, personnel and major subcontractors or suppliers
• Bid results, known disputes, past-due accounts or other material concerns

A Practical Performance-Bond Request Process

What Happens After an Alleged Contractor Default?

The obligee normally must follow the bond form and contract procedures, which may include notices, an opportunity to cure, termination requirements and a formal declaration of default. The surety then investigates the facts, defenses, remaining work, contract balance and available options.

Depending on the bond and circumstances, possible responses may include supporting the existing contractor, arranging completion, tendering another contractor, financing completion or paying covered damages up to the bond’s limits. No specific remedy is automatic before investigation and satisfaction of the governing conditions.

Common Performance-Bond Problems to Avoid

• Waiting until the contract-signing deadline to send final documents
• Using the wrong legal name for the contractor or obligee
• Issuing the bonds for an incorrect contract amount
• Submitting the wrong performance-bond form or omitting a required payment bond
• Failing to disclose a major scope, price or schedule change after bidding
• Changing an approved bond form or power of attorney without authorization
• Beginning work before required bonds and contract documents are accepted

How Much Does a Performance Bond Cost?

A performance bond is commonly priced together with the required payment bond as a final-bond package. Premium is generally based on the bonded contract amount, applicable rate schedule and underwriting terms rather than separate full charges for each bond.

Rates and approval are not automatic. Contract size, duration, bond form, contractor experience, financial strength, current backlog and project risk can affect the terms offered by the surety.

Performance and Contract Bond Resources

Construction Performance Bonds Video

Watch the construction performance bonds video on YouTube

Nationwide Construction Performance Bond Support

White Lion helps contractors and subcontractors move from bid-bond approval to final performance-bond issuance and coordinate any related payment-bond requirement. All approvals, terms, capacity and issuance timing remain subject to surety underwriting, the final contract and project requirements.

Call (949) 258-9800

Get the Right Performance Bond for Your Construction Project