Surety Bonds: Performance
The Performance Bond follows
the Bid Bond if
the Principal (Contractor) was deemed low bidder
and is awarded a contract. The Performance Bond guarantees
that the contractor will complete the contract in
accordance with the terms, conditions and specifications
of the contract. The Performance Bond is required
as a condition of being awarded the contract.
Performance Bond guarantees the owner that the Principal
(Contractor) will complete the contract according
to its terms including price and time. The owner
is the obligee of a Performance Bond, and may sue
the Principal and the Surety on the bond.
the Principal defaults, or is terminated for default
by the owner, the owner may call upon the surety
to complete the contract. Many performance bonds
give the surety three choices: completing the contract
itself through a completion contractor (taking up
the contract); selecting a new contractor to contract
directly with the owner; or allowing the owner to
complete the work with the surety paying the costs.
The penal sum of the performance bond usually is
the amount of the prime construction contract, and
often is increased when change orders are issued.
The penal sum in the bond usually is the upward limit
of liability on a performance bond. However, if the
surety chooses to complete the work itself through
a completing contractor to take up the contract then
the penal sum in the bond may not be the limit of
its liability. The surety may take the same risk
as a contractor in performing the contract.