What Employers Should Ask Before Accepting a Performance Bond from a Contractor
When you’re about to appoint a contractor, especially on a large or complex construction project, a Performance Bond can give you peace of mind. However, accepting a Performance Bond without proper due diligence can leave you exposed.
This blog will discuss everything you need to ask before you accept a Performance Bond from a contractor, including the key questions and issues to run through before saying yes to a Bond.
Why Performance Bonds Matter for Employers
A Performance Bond is a type of Surety Bond that guarantees the contractor will deliver the works as promised. If the contractor fails, for example, because they go insolvent, abandon the project, or fail to meet quality or scheduled obligations, the Performance Bond provides the employer (beneficiary) with a financial remedy.
In many UK construction contracts (particularly those based on standard forms), Performance Bonds are frequently requested, especially under economic uncertainty, or where Housing Associations are involved.
Given the importance and common use of Performance Bonds in UK construction, it’s critical for employers to treat acceptance of a Bond as a formal risk-management decision, not a tick-box exercise.
What to Check Before Accepting A Performance Bond From A Contractor
The main things that employers should run through before agreeing to a Performance Bond from a contractor are:
What type of Performance Bond is it?: With a Conditional Bond, you’ll need to prove a breach (e.g. contractor default, insolvency, non-performance) before the bond can be called. With an On-Demand/Unconditional Bond, the beneficiary can demand payment without needing to show breach in the same way. That affects how easy (or difficult) it is to claim under the Bond.
Read the Bond wording carefully: The precise wording of the Bond significantly affects when and how it can be triggered. The wording determines what counts as a valid default, what evidence you must supply, any notice periods, and the maximum payable. Mistakes or vague wording can make enforcement difficult.
Confirm the Bond value: In UK construction, it is common for the Performance Bond amount to be around 10% of the contract value, though this can vary. You need to check whether that percentage is appropriate given the size, risk and complexity of the project.
Verify the Surety’s credentials: A Performance Bond is only as good as the Surety behind it. Ensure the Surety or guarantor is credible, financially stable, and acceptable under your project’s risk profile. If the Surety isn’t strong, the Bond may offer little real protection.
Check the duration and expiry conditions of the Bond: Make sure the Bond remains in force until the risk has truly passed, for example, until practical completion and any defect liability or snagging period (if relevant). Bonds that expire too early may leave you exposed.
Confirm how and when you can call the Bond: Understand what triggers a claim, what evidence you’ll need to provide, notice requirements, and the timeframe.
Consider alternative or complementary security (Retention Bonds, or Parent Company Guarantees): In some cases, a Retention or Warranty Bond may be a more suitable or complementary form of security, depending on the project size and risks.
Ensure documentation is properly signed, dated and lodged before works start: Before any work begins, ensure the Bond is executed correctly, provided to you, and referenced in the contract documentation. If this step is skipped, you may have difficulty enforcing it later.
Understand what the Bond actually covers: A Performance Bond typically covers failure to complete works, insolvency, non-performance, defective works or abandonment, but it may not cover everything you’re worried about. Always confirm the scope with the wording.
Decide whether the Bond is sufficient given the project risk: For larger, long-duration or high-risk contracts, a standard 10% Bond may not be enough. You may need a larger Performance Bond or additional security (e.g. Parent Company Guarantee, Retention Bond, or Defects Guarantee).
When Is a Performance Bond Advisable?
A Performance Bond is recommended on all projects as a safeguard against contractor default, providing essential financial protection for the employer. They become especially important on high-risk, complex or long-term schemes — such as projects involving multiple trades, extended build periods, public-sector requirements, external funding, or where the contractor is less established or shows signs of cash-flow pressure.
Performance Bonds and More from CG Bonds
A Performance Bond can be a powerful tool for employer protection, but only if you treat it with the same rigour as the main contract. Accepting a Bond should involve a careful review of the Bond wording, surety credentials, Bond value, duration and how/when you can enforce it.
With the right approach and a reliable Bond provider such as CG Bonds Surety, a Performance Bond becomes a real safety net, allowing you to award contracts with confidence while protecting your interests. Request a Performance Bond quote from CG Bonds today.
