If you are wondering what a performance bond is, it is really nothing more than a type of surety bond that a contractor bidding on a building project has to present to project owners. It is a necessary requirement as indicated in the law covering projects that over $100,000.
How does a performance bond work? It works this way: A contractor signs up for a bond and presents it to the project owner work on a project. If the contractor is unable to finish it or does not complete it according to specifications, the bond company will pay the project owner equivalent to the project cost.
If you are like most people, you won’t ever have a need to get a surety bond, however, if you have any plans of creating a construction company working on big-ticket projects, you will need to have it and you need to get it from reputable providers.
Thankfully, there are many of them that you can choose from. And you can easily find them by doing a search on Google. One thing you need to know about a surety bond is that it works like an insurance plan. You get it just in case something happens.
Another thing you need to know is that not surety bond providers are actually picky in who they issue bonds to. For example, there are certain companies that only cater to contractors of a certain financial standing and credit rating. In other words, they do not open their doors to contractors that have less than stellar finances or are totally new to the industry.
If your company falls into the category of new or less-than-stellar (financially), you do not need to worry because there are surety bond companies out there that actually cater to companies just like yours. And you can easily find them on Google.
Of course, you need to be prepared to pay the price because they are taking a certain amount of risk by issuing a bond to you. While most bonds cost less than ten percent of the project amount, a bond issued to a high-risk company might cost ten percent or more. But that is just a guess that we have.
If you really want to know how much it will cost you, make sure to find different issuers (again, you can easily find them on Google), and ask them.
Performance surety bonds do not take effect until something happens to allow project owners to rightfully make a claim against a bond (like we said, they work just like insurance). Also, they are usually paired with a payment bond. A payment bond is also required by the government for projects over $35,000. If you are the general contractor, you will need to have this in place before you can proceed with a project.
A payment bond guarantees that your subcontractors and workers, as well as suppliers, will be paid no matter what happens to the project.