Bond TypePerformance Contractor Bonds
Who needs a performance bond?
A performance bond is required of any contractor who won the bid on a project, where the project owner wishes to protect their investment in the project. Before the contractor can legally begin performing their contracted work, they must obtain a performance bond.
A performance bond protects against scenarios where the contractor fails to complete the project based on the contractual agreement, practices negligence, or causes any harm through their work. The affected project owner can file a claim on the performance bond up to the bond’s full amount. If the claim is found to be valid, the surety company will compensate parties that suffered financial loss but requires the contractor to reimburse them in full.
Performance bonds can be required on any type of project, whether local, at the state level, or federal projects. All Federally funded projects worth $100,000 or more require that contractors obtain a performance bond in accordance with The Federal Miller Act.
How much do performance bonds cost?
A performance bond amount is dictated by the contract amount, which is the amount that the contractor bid. The contractor therefore sets the bond amount through their bid, which can then be accepted or denied by the project owner.
When a project owner accepts a bid, the chosen contractor much secure a performance bond up to the bid’s amount. Performance bonds are usually issued at a premium 2-3% of the contract amount, although financial and credit history may be taken into account during the underwriting process. The contractor must not purchase the contract bond until after their bid has been accepted.
Payment requirements can be found here.
Information needed on your bond application
Project bid amount
Project bid date
Have you ever had a bond before?
Performance bond amount (if applicable)
Company history and financials
Personal credit score and financial history
You can get a free, no-obligation quote for a performance bond by applying online or by calling a contractor bond expert at 1 (800) 308-4358.
The difference between bid, payment, and performance bonds
Before obtaining a performance bond, contractors must obtain a bid bond to submit their project bid to the project owner. Bid bonds ensure the contractor’s financial backing and capabilities as a worker.
A performance bond is required to ensure that every project is completed according to the terms outlined in the agreed upon contract.
Payment bonds are often required of contractors in addition to performance bonds and may even be written on the same bond form. A payment bond protects all suppliers and subcontractors working under them to ensure proper payment.