Learn more about performance bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Performance Bonds?
Performance bonds are a type of construction surety bond that guarantees satisfactory completion of a project by a contractor, thus protecting the project owner against financial loss from a contractor’s poor performance or default. These bonds are sometimes issued together with a payment bond, which guarantees that the contractor will pay their labor and supplier costs in compliance with their contractual obligations.
Who Needs Them?
If you’re a contractor working on either a public or private construction project, you may have to purchase a performance bond as a condition of being awarded a contract. Government agencies sponsoring public works projects and the owners of private projects involving the construction and development of real property may also require these bonds. Performance bonds are required by federal law for projects of $100,000 or more to protect against the loss of taxpayers’ money used to finance the project. Most states have enacted similar legislation for state-funded public works projects.
How Do They Work?
There are three parties involved in the bond: the obligee, the principle, and the surety. The obligee is the project owner requiring the bond. The principal is the contractor who purchases the bond, and the surety is the company issuing the bond. The underwriter subjects each application to an approval process to determine the principal’s ability to complete the project in accordance with the terms of the contract.
If the principal ends up defaulting on its contractual responsibilities, the obligee can file a claim against the bond to recover any financial damages, such as the cost of hiring another contractor. If the surety determines that the claim is valid, it will make payment to the obligee, and then sue the contractor for reimbursement.
What Do They Cost?
Performance bond cost is determined as a percentage of the bond amount. That percentage, the premium rate, is established for each contractor based on the type of project, the applicant’s credit history and financial condition, and the location where the bond is required. Typically, the rate will range between 1-3 percent for smaller projects.
Use our convenient online system to apply for a performance surety bond today.