Performance Bonds

What are performance and payment bonds?

A performance bond is a type of surety bond.  These bonds are generally used for government jobs (per the Miller Act) and have become much more prevalent in regular jobs over the years.  A performance bond is a guarantee that the Obligor (usually a construction company) will perform the terms of the job according to the specifications of the job.  If the Obligor does not perform according to the terms of the job, then the Obligee (who is the owner of the job, such as the Federal government or the private owner of the property), will be able to claim damages from the Surety.  The Surety is the company that provides the guarantee on behalf of the Obligor.  Most surety companies are large insurance companies.

Payment Bond

A payment bond is usually required right along with a performance bond.  A payment bond assured that the contractor pays all of his subcontractors on the job.  This provides assurance to the Obligee that they will not have any claims made later on, such as a mechanic’s lien, that will slow down the completion of the job.  This helps alleviate the risks associated with the job and will ensure timeliness for the completion of the job.