Who Will Require A Performance Bond?

 

It is usually government-related or government-awarded projects that will require at least a performance bond from the main contractor. Also, performance or surety or contract bonds are commonly awarded to some private sector businesses that give out some construction projects.

The importance of the contract bond is to act as a protection against the principal who is the main contractor in the surety agreement. The Obligee or the government or the project owner in this context needs to be protected from the project being executed unsatisfactorily. The performance or surety agreement needs to specify certain things which are;

1.       The tasks to be carried out.

2.       The results or outcomes that are expected from the construction works.

3.       The timing or period to complete the tasks.

Also, there can be a situation whereby the main contractor who is the principal in the performance bond agreement is being declared bankruptcy and thus is prevented from completing the project. The project owner will have to be protected in this kind of situation. Payment of the contract bond will be made to the government or project owner.

It is the principal that usually apply for surety bond for any project. And when doing this, the contractor is expected to provide to the bond issuing company or the surety who could be insurance company or bank the following documents or information;

a)       A minimum of two years financial statements of the contractor. This financial record or history must have been reviewed by the CPA (Certified public Accountant) or chartered accountant.

b)      A copy of the contract award that the surety bond is tied to.

c)       An indication that the contractor has applied to the surety company.

d)      Some assets such as real estate and any other collaterals which are owned by the principal applying for the contract bond.

All these are required to ensure the surety company is able to ascertain the financial stability of the principal requesting for the performance bond. This surety bond is not an insurance coverage.

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