Contract Bonding & Performance Bonds Overview
The purpose of a contract bond is to ensure that the contractor follows the terms of the contract. A performance bond is a type of contract bond that 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, which includes federal contracts for the construction, repair or alteration of a public federal building. Performance bonds are required to 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.
In many cases, performance bonds are also required by private project owners, and obtaining one will provide credibility to a contractor.
A performance bond is a type of surety bond, which means that it is an agreement between a principal, an obligee and a surety. The contractor who is required to obtain the bond is the principal. The principal is obligated to fulfill the terms of the contract with the obligee, which is 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.
The government or project owner has a right to make a claim on the performance bond for the completion of the project if the terms of the contract are not fulfilled.
Considerations for Contract Bonding & Performance Bonds
In many cases, your contracting company will be required to obtain a performance bond in order to obtain a contract for a project with a project owner.
The surety company will evaluate your financial status, your credit history and your claims history before determining the price of your bond.
How to Get Started
Although performance bonds are often required by contract owners and developers, they may be difficult 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.