A guarantee that a contractor will finish the job as promised.
A performance bond is a surety bond that guarantees a contractor will complete a project according to the contract terms and specifications. If the contractor defaults, the surety may complete the project itself, hire a replacement contractor, or pay the owner the financial damages up to the bond's penal sum. Performance bonds are standard on public projects and increasingly common on large private projects, typically sized at 100% of the contract value.
A municipality requires a 100% performance bond on a $3 million road resurfacing contract; when the contractor abandons the project, the surety pays to have a replacement contractor complete the work.
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