There are no guarantees in life or business, but in construction we have the performance bond. A performance bond, also known as a contract bond is a surety bond issued by an insurance company or bank to guarantee completion of a project by the contractor. Most government or private sector projects require performance bonds in order to protect tax payer’s investments in the case the contractor is unable to deliver the project as contracted.
Here are four facts you should know:
- Who is covered in a performance bond?
In the construction industry, the payment bond is usually issued along with the performance bond. The payment bond forms a three-way contract between the Owner, the contractor and the insurance company or bank, to make sure that all subcontractors, laborers, and material suppliers will be paid leaving the project lien free.
- How is a performance bond issued?
A performance bond is issued to one party of a contract (contractor) as a guarantee against the failure of the contractor to meet the obligations of the contract. A performance bond is usually issued by a bank or an insurance company.
- How much does a performance bond cost?
The cost of a performance bond is usually less than 1% of the contract price; however, if the contract is under $1 million, the premium may run between 1% and 2%. Your credit-worthiness will play a part in the overall costs. You will more than likely need a labor and material payment bonds as well.
- How long do I need to get a performance bond?
It is important that you start the application process early. Performance bonds can take a few weeks to file and process so it is important that you don’t wait until the last minute. Mindi McKinley Insurance Company can help you get through the process quickly and swiftly, call today for more information.