Performance Bonds

A performance bond is a type of construction bond offered by a surety company as a financial guarantee. Performance bonds ensure the satisfactory completion of obligations specified in the agreement, acting as a guarantee that a project or job will be completed per the terms and conditions outlined in the contract. 

Performance bonds offer protection to the project owner or obligee, typically by providing financial compensation in case the contractor or principal fails to meet their contractual obligations; this is often due to bankruptcy or insolvency of the contractor.

The performance bond amount typically represents 10% of the contract value, which is used as compensation for the challenges incurred from either non-performance or insolvency of a contractor, such as finding a new contractor to complete the project.

We talk about them in more detail in our guide here: What are performance bonds?

There are several reasons why you may need a performance bond. Below we have listed the four main reasons why a performance bond may be required:

• Risk Mitigation/Financial Security: Performance bonds act as a risk management tool. If the contractor defaults or encounters financial difficulties, this can cover the costs of hiring a replacement contractor to complete the project without additional financial burden on the Employer/Beneficiary.
• Credibility and Trust: Having a contract performance bond can enhance the contractor’s credibility. It demonstrates to clients that the contractor is financially stable and committed to completing the project.
• Regulatory Compliance: Many government contracts and large-scale projects also require performance bonds as part of the bidding and contracting process. Complying with these requirements is necessary to secure such contracts.
  
  
• Client Peace of Mind: Clients or project owners often feel more comfortable when they know that a performance bond is in place. It gives them peace of mind that their investment is protected. This is further heightened in times of economic instability.
  

To apply for a performance bond guarantee, our client relationship team will request and require the following information:

• Completed & Signed Application Form
• Most Recent Audited Financial Accounts
• Latest Management Accounts (if available)
• Copy of Performance Bond Wording (if available)

Performance bond costs can fluctuate significantly and are influenced by several factors — including your financial stability, the availability of additional security, the bond duration, the bond wording, and the unique characteristics of the project. 

For that reason, contact the team for an immediate non-binding indication. We understand that these are particularly helpful to submit with tenders. In order to receive a precise outline offer, we would require the aforementioned. However, we do talk about pricing and cost in more detail here: How much are performance bonds?

What we can guarantee though is that we will beat any quote on the market. So you’ll always get the best possible price with CG Bonds. 

Complete our new easy-to-fill-out online bond application form here.

Has your client surprised you with an urgent performance bond requirement? CG Bonds can provide non-binding indications/estimations immediately upon request. 

Formal quotations can be provided anywhere between 5-7 working days upon receipt of a full application form and supporting information.

Request a free quotation today.

There are different types of performance bonds and knowing the difference between them is essential. The key difference between conditional and unconditional/on-demand performance bonds lies in the conditions for activation and the beneficiary’s claim requirements. 

Conditional bonds require proof of a contractual breach or specific conditions being met, while on-demand bonds provide immediate payment to the beneficiary upon a valid demand, without the need for proof of non-performance.

Conditional Bonds

Conditional bonds are a type of surety bond that is contingent on specific conditions or requirements being met before the performance bond becomes effective or enforceable. 

Conditions for Activation: The conditions for the contract performance bond’s activation are usually detailed in the bond agreement/wording. They may include the following scenarios:

• The contractor’s failure to complete the project within the agreed-upon timeframe.
• Failure to meet specific quality or performance standards outlined in the contract.
• The contractor’s financial default or inability to pay subcontractors and suppliers.
• Other specific conditions that are stipulated in the contract.

On-Demand/Unconditional Bonds

An on-demand performance bond, also known as an unconditional bond or demand guarantee, is a type of surety bond that provides a guarantee of performance by a contractor or principal. They do not require the beneficiary (typically the project owner or client) to prove a breach of contract or fulfil specific conditions to trigger the performance bond. In essence, it is a more straightforward and immediate form of financial protection for the beneficiary.

With on-demand performance bonds, the beneficiary can make a claim and receive payment from the bonding company immediately upon presenting a demand for payment. The beneficiary does not need to show evidence of non-performance or contractual violation.

Other performance bonds:

• JCT Performance Bonds — A JCT performance bond is a bond that is detailed and recommended within a Joint Contracts Tribunal (JCT) contract.
• ABI Performance Bonds — The Association of British Insurers (ABI) provides specific and standardised template wording for performance bonds. An ABI performance bond is therefore a conditional bond that uses this standard wording. .

CG Bonds can do the liaison with legal and financial professionals, therefore, if you require a performance bond with specific wording, speak to a client account manager today who can liaise with yours, or your clients, legal and financial representatives

The expiry of a performance bond is dependent on the beneficiary/employers preference, typically they expire on practical completion of the main contract. However, they can also expire on making good of defects; also known as defect liability bond. Find out more information about this on our defect liability bond page.