Contract Bonding & Performance Bonds Overview
A contract bond ensures that the contractor follows the terms of the contract. A performance bond protects a project owner by providing a financial incentive for the contractor to complete the project according to the terms of the contract.
The Purpose of Performance Bonds
The Miller Act requires a contractor to obtain a performance bond for any federal contract that also requires a payment bond, including federal contracts for the construction, repair, or alteration of a public federal building. Performance bonds protect the federal government or any project owner who chooses to require one by providing some security that the project will be completed according to the contract.
Private project owners often require performance bonds, and obtaining one will give a contractor credibility.
A performance bond is a type of surety bond, an agreement between a principal, an obligee, and a surety. The contractor who is required to obtain the bond is the principal. The principal must fulfill the contract terms with the obligee, the government agency, or the private project owner, who requires the principal to obtain the bond. The surety, or the company that provides the bond to the principal, evaluates the principal and ensures that the principal can adequately fulfill the terms of the contract.
If the terms of the contract are not fulfilled, the government or project owner has a right to claim the performance bond for the completion of the project.
Considerations for Contract Bonding & Performance Bonds
In many cases, your contracting company will be required to obtain a performance bond to obtain a contract with a project owner.
The surety company will evaluate your financial status, credit history, and claims history before determining the price of your bond.
How to Get Started
Although contract owners and developers often require performance bonds, they may be challenging to obtain at the price you are looking for. Regardless of your credit and claims history, a bonding professional at Fusco & Orsini can help you find options for your performance bond. Check out our Time-Saving Tools, and contact us through our online form.
