Understanding Performance and Payment Bonds in Construction

Performance and payment bonds protect project owners, contractors, subcontractors, and suppliers during construction projects. These surety bonds help ensure projects finish on time and that everyone involved gets paid.

Performance Bond Coverage

A performance bond guarantees that the contractor will complete the project as outlined in the contract. If the contractor fails to meet their obligations, the  bond compensates the project owner. This coverage protects owners from financial losses caused by contractors or delays.

Payment Bond Coverage

A payment bond ensures subcontractors, suppliers, and laborers receive payment for their work and materials. If the contractor doesn’t pay, the payment bond provides funds to cover those costs. This bond protects subcontractors and suppliers and helps keep the project running smoothly.

How Performance and Payment Bonds Work

Contractors, called principals, obtain  bonds from surety companies. Contractors pay premiums to the surety. If a claim arises, the surety investigates and, when valid, pays up to the bond amount to the injured party.

FAQs

Q: Are performance and payment bonds required on all construction projects?
A: Many public and large private projects require these bonds, but requirements vary by contract and jurisdiction.

Q: What happens if a contractor fails and the bond is claimed?
A: The surety investigates the claim, compensates the owner or suppliers if valid, and typically seeks reimbursement from the contractor.