What is a Performance Bond?
by: David Field
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A performance bond is issued by an insurance company, and it gives the client a guarantee that the project will be completed by the contractor; if the contractor fails to complete the work then client will not lose out on any money they may have paid or promised the contractor.
One example is whereby a contractor issues a performance bond supporting the client, for which the contactor is working. Contractors do this because they will have more chance in obtaining the project if the client is insured by an insurance company. If the work is not completed or up to standard, then the client will receive compensation up to the amount of the performance bond.
Real property is where performance bonds are commonly used, an owner or investor regularly requires one in order to be assured that the work the contractor carries out will not suffer for any unfortunate events like going bankrupt for example.
Other instances where performance bonds may be required are to insure large contracts including civil construction. Performance bonds can also be used to secure future contracts. The origin of performance bonds date back to 2,750 BC, although the Romans created the laws of surety many years after of which the main ideas still exist.
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