Also known as a contract bond, this is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. For example, a contractor may be required to provide a performance bond to be issued in favor of a client for whom the contractor is constructing a building.

If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to insolvency of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the bond.

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performance bond