General Contractor Performance Bond Information

Performance bonds ensure project completion.

A performance bond is essentially a guarantee that a construction project will be completed by the general contractor or subcontractor. If the contractor can't perform, for any reason, the bonding company guarantees and finances the completion of the project.

Description

An owner or developer can require the contractor or subcontractor to provide a performance bond as part of the terms and conditions of the contract. Should a contractor of subcontractor fail to perform for any reason, the owner/developer files a claim for project completion with the insurance company.

Determining the Bond Value

The contractor or subcontractor must know how much the bond is worth in dollars in order to apply for a performance bond. The value of the contract is negotiated with the owner or developer before starting a project. The performance bond usually matches the contract.

Obtaining a Bond

The contractor or subcontractor provides the insurance company with all documents specified by the insurance company. These may include contracts, estimates, lien waivers, owner/developer information and scope of services.

Premium

The premium is set by the insurance company and payment of the premium is negotiated between the owner/developer and contractor. The premium is based on business relationship and past history of claims.

Considerations

Performance bonds can be initiated at any time during the course of a construction project. For example, if the contractor delivers below-standard performance, the owner can require a performance bond.

Potential

A general contractor can require a performance bond from a subcontractor regardless of whether the general contractor is providing a performance bond for the owner/developer.

References

• Surety Bonds
• Building Solutions
• Construction Advisory Group