Performance bonds help assure the owner (obligee) of a project that a contractor (principal) will complete a project according to the terms of the contract. If a project is not completed within the specifications set forth in the contract, the obligee will be covered by the performance bond and will be covered for losses.
The owner may call upon the surety to complete the contract if the principal defaults or is terminated for default by the owner.
Performance bonds offer three options for the owner: having a completion contractor finish the project, selecting a new contractor or allowing the owner to complete the work with the bond payment covering the costs.
The amount of the prime construction contract is usually the penal sum of the performance bond and can be increased when change orders occur. The performance bond’s penal sum is the upper limit of liability. 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 principal in performing the contract.
Performance bonds secure all public projects by government mandate. Federal law requires a performance bond for projects costing over $100,000. Construction performance bonds are also required for many private projects.
McGovern Insurance is an experienced insurance and bonding agency that understands construction performance bonds. Call us at (650) 593-8216 or complete the form on this page to get your personalized performance bond quote.