Do Performance Bonds Have An Expiration Date?
Performance Bonds typically expire when the period specified in the bond wording comes to an end, or upon practical completion of the works. They can also be valid until any goods with defects are made. How long a Performance Bond lasts is usually based on the wording of the bond, which is determined when the bond is granted.
This article will discuss everything you need to know about Performance Bond expiration dates, what happens when they expire, extensions and cancellations, and how you can apply for a Performance Bond.
Key Features of a Performance Bond
Performance Bonds are a type of Surety Bond commonly used in the construction industry. They provide a financial guarantee to the project owner (obligee) that the contractor (principal) will fulfil their contractual obligations. In the event the contractor fails to perform, the bond offers compensation to minimise financial risk and ensure the project can continue.
If you’re a contractor, then a Performance Bond is a great way to enhance your credibility and to show that you are financially stable and committed to finishing a project. This, in turn, will give your clients and the project owners peace of mind, as it means their investment will be protected.
For example, a contractor working with a housing association on a development for a large number of plots will very likely need to offer the housing association a Performance Bond to guarantee security and that the work will be completed.
What Happens When a Performance Bond Expires?
Typically, a Performance Bond only expires when there is a longstop date detailed in the bond wording. A Performance Bond is tied to the duration of the contract and the successful completion of project milestones, such as the completion of construction projects.
If there is no longstop date detailed in the bond, the Performance Bond remains in place and valid until bond expiry has been achieved, usually Practical Completion (PC) or Making Good of Defects (MGOD). The project completion allows the bond to be released once all the contractual obligations have been fulfilled.
Find out more about Performance Bond duration in our blog – How Long Do Performance Bonds Last?
Can You Extend A Performance Bond?
There are certain circumstances where you may be able to extend your Performance Bond. The bond may have a clause in its wording that includes provisions for extensions or renewals under certain conditions. Other reasons you may be able to extend a Performance Bond include:
Extend or Pay Provision
A Performance Bond may include an extension or pay provision that allows the beneficiary to request an extension of the bond’s validity period, which is useful if a project overruns.
Bond Duration
The duration of a Performance Bond depends on the scope, complexity, and timeline of the project it is being used for. If the works overrun, the bond provider may extend it, but this can come with them charging overrun fees.
Surety companies often consider factors such as contractor performance history, financial stability, and project-specific risks when deciding whether to grant extensions or renewals of Performance Bonds.
Can You Cancel a Performance Bond Early?
Most Performance Bonds or guarantees can be cancelled if both parties and the surety provider agree to cancel the bond. However, there may be specific terms and conditions outlined in the construction contract that dictate the process for cancelling the bond.
It is important to review the terms of the bond agreement and consult with an advisory team such as CG Bonds to ensure that the cancellation is done in accordance with the contract.
Performance Bonds and More from CG Bonds
Calculating the length you need for your Performance Bonds depending on the predicted length of work can be confusing and frustrating for contractors, especially if you are trying to complete the application yourself. CG Bonds can help and work with the employer to understand the exact bond duration and cover required.
Contact us today for help with your performance bond application. We are always happy to offer our unparalleled advice on Performance Bonds so you can make a well-informed decision.
The information provided in this blog is not intended to constitute legal advice or any other advice of a professional nature. The recipient of this information contained in this blog should always consult legal or professional advice.
