Performance Bond

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Performance Bond Information

A Performance bond is a contract between 3 separate entities to ensure that when a project taken by a contractor is completed, it is finished to the completion of the project owner or managers satisfaction or is completed on time, within the budget and to the contract specifications. The entities involved are usually the project owner or manager, this could also be the investor or oblige as far as the contract is concerned. The second concerned party would be the contractor or the principal. This is the person, persons, or company, whom would be responsible for fulfilling the main obligations of the contract, as in building the project to the satisfaction of the project owner.

If, in fact, the contractor does not fulfill his obligation to the project owner’s satisfaction or to the specifications set forth in the contract, which is where the performance bond comes into play. If, either the contractor quits the job or the requirements set forth in the contract are not met, then the third entity, the surety, who issued the bond at an expense to the contractor when the bid was originally placed, steps in and settles the matter, financially, with the project owner. Due to possible issues along this line on government projects, any project that is publicly funded over $100K, a Payment Bond is required, by law, under the Federal Millers Act.

When a contractor does default or fails to fulfill his contractual obligations then the surety company usually has options written into the bond contract which may include a replacement contractor, rebidding the job for completion or paying the penal sum of the bond.

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