What is a Performance Bond, its purpose and implications?

Bonds are provided as useful means of creating financial security for the Employer for the Contractor’s failure to perform his contractual obligations.

Generally, a bond is an arrangement under which the performance of one party (A) to another party (B) is backed up by a third party (C). What happens is that C promises to pay B a sum of money if A fails to fulfil the relevant duties. In this context A is commonly known as the principal debtor or simply principal; B is called the beneficiary; and C is called the bondsman, surety or guarantor.

In the construction context, such back-up is likely to come from one of the two sources below:
(a) Parent Company Guarantee – the contractual performance of one company within a corporate group is underwritten by other members of the group; or
(b) Bonds – normally provided (at a price) by a financial institution such as a bank or an insurance company.

To obtain a copy of the article, kindly fill in the following form and click send.

More to explorer

What is Head Office Overheads?

The calculations of head office overheads or “extended home office overheads” have been puzzling many in the construction industry for a number