Bid & Performance Bonds
Performance Bond (Performance Bond)
A surety bond that guarantees the contractor will complete the work to specification.
Definition
A performance bond is issued by a surety company on behalf of the contractor. If the contractor defaults — fails to complete the work, fails to meet specifications, or becomes insolvent — the surety either completes the work itself or pays the agency to hire a replacement contractor, up to the bond amount.
When it applies
Required on federal construction contracts over $150,000, typically at 100% of contract value. Required on most state and local construction projects, often at 50-100% of contract value. Less common on service contracts. Premiums are typically 0.5-3% of contract value annually, depending on contractor financial strength.