Chapter 2 — Types of Surety Bonds
What Is a Performance Bond?
A performance bond guarantees the project owner that the contractor will perform the contract according to its terms. It is normally required after award, before contract signing or notice to proceed.
What it guarantees
The performance bond answers for the owner's loss if the contractor fails to perform the contract — abandonment, persistent non-performance, or termination for default. Recovery is capped at the bond amount and governed by the bond's terms and the underlying contract.
It is not a warranty of workmanship after completion, and it is not a guarantee that subcontractors and suppliers will be paid. Those obligations are typically addressed by warranty and payment bonds respectively.
Amount and validity
The bond amount is normally a percentage of the contract price, with the percentage stated in the contract or bidding documents and sometimes varying with the form of security chosen. Validity usually runs through project completion and acceptance, and extensions are required when the contract period is extended.
Why underwriting is more searching than for a bid bond
At the bid stage the exposure is limited to re-bidding costs; here it is the cost of completing a contract. Expect closer attention to working capital, backlog, experience with comparable scope, key personnel and the contract's own terms, including liquidated damages and payment arrangements.
Documents commonly required
- The signed contract or notice of award stating the bond amount and validity.
- Latest audited financial statements, plus interim figures where relevant.
- Company registration documents and contractor licence records.
- List of completed and ongoing projects.
- Signed indemnity documentation, and collateral or additional security where the insurer requires it.
Practical points
Apply as soon as you receive the notice of award rather than waiting for the signing date, keep the validity aligned with every contract extension, and remember that the bond amount consumes part of your available capacity for other projects.
Requirements, terms, pricing and approval are determined by the applicable insurer.
Key takeaway
A performance bond backs contract performance up to its stated amount — apply on notice of award and keep validity aligned with contract extensions.
Related topics
Relevant bond information
Need information about a surety bond requirement?
Submit an inquiry with your project details, and SuretyPH will organize your submission for the applicable insurer's evaluation.
Important Notice
SuretyPH is a digital platform for surety bond information, inquiries, and application facilitation. Submission of an inquiry or supporting documents does not constitute approval, binding, or issuance of a surety bond. Any formal application is subject to the requirements, evaluation, underwriting, terms, conditions, and approval of the applicable duly licensed insurance company.
SuretyPH is a digital platform for surety bond information, inquiries, requirements and request tracking. It does not underwrite, approve, bind, issue, or guarantee any insurance policy or surety bond. Evaluation, underwriting, approval, pricing and issuance are undertaken by the applicable licensed insurance company.