A performance bond is a surprisingly simple type of surety bond that is usually issued by a bank or insurance company. In essence, a contractor who accepts a contract takes out one of these bonds as a good faith measure to assure clients that the contracted work will be done right. A contractor who does not finish the work to the terms of the contract itself parts with the funds in the bond as a means of making up for any losses incurred by their client in accepting the contract bid that went awry. There are a wide variety of bonds of these types ranging from laundry services to private investigation services.
For instance, a construction contractor hired to erect a building for a client, be they a corporation or a government agency, may be required to take out a performance bond before even clearing out the site. If the building either can not be built or does not satisfy the terms of the contract, the construction contractor will be required to pay their client the full sum of the bond taken out. The client then manages to make up at least some of the monetary loss incurred for paying for a contract that could not be properly fulfilled. Though these bonds seldom recoup all of the client’s losses, most such bonds tend to assure that clients will not suffer unduly if things do go so bad that the contracted work can not be completed.
These bonds find the most use in the construction and real property development industry. As long term, exceedingly expensive contracts are issued in these industries, it is a near certainty that eventually something will go wrong and the contract can not be fulfilled. Sometimes this is due to the sudden financial insolvency of the contractor’s company. Other unfortunate events that can be laid at the contractor’s feet are also the kind of thing such bonds are intended to provide reassurance for. If a contractor or their workers are deemed incompetent, corrupt or both and the project suffers as a result of these factors, bonds are often collected when the project falls apart so the client can make up at least some of their losses. These bonds also find extensive use in commodity trading contracts, where the seller promising a shipment of a commodity will be delivered. Should something go wrong and the commodity shipment can not be delivered for whatever reason, the bond is collected by the buyer.
These bonds are particularly common in the United States. In 1932, the Miller Act required that all construction contracts paid for by the federal government were backed by bonds such as these. Soon afterwards, most states and many other, smaller, jurisdictions enacted their own similar legislation to protect their own building projects. Among the over 25,000 types of performance bonds in the United States, Bonds Express offers a wide range of these bonds for every state in the nation. While not every state accepts every bond type, Bonds Express offers both nationwide and state required bonds.