Who issues Performance Bonds?

When you’re starting a new construction project, one of the things you’ll need to do is get a performance bond. This document guarantees that the contractor will complete the project according to the agreed-upon specifications. But who issues performance bonds? In this blog post, we’ll answer that question and give you some tips on how to get one for your next construction project!

Who issues Performance Bonds? - A surety agent walking down the aisle of their office. Inside the Surety Company building.

What is a performance bond?

A performance bond is a surety bond issued by an insurance company or a bank to guarantee the satisfactory completion of a project by a contractor. It protects the owner of the project from any financial loss if the contractor fails to meet the obligations laid out in the contract.

Example of performance bonds?

Performance bonds are an important tool for businesses to protect their interests. A performance bond assures that a specific project or job will be completed by the terms and conditions of the agreement between two parties. Typical examples of performance bonds include construction contracts, subcontractors agreeing to complete certain work on a given timeline, service providers such as janitorial services, or any other agreement that requires performance on the part of the bonded party.

Industries that use performance bonds

Industries that use performance bonds span many sectors, including construction, government contracting, utilities and energy, commercial real estate development, and more. Bonds are used by contractors to guarantee the completion of a project or a certain performance standard if they fail to fulfill their obligations under a contract.

How much does a performance bond cost?

Performance bond costs are typically calculated as a percentage of the contract value, and the amount can vary greatly depending on the size of the project and other factors. Generally speaking, performance bonds for smaller projects cost between 1-3% of the total contract. For larger projects, costs may be higher — sometimes up to 15%. The type of industry and contractor’s credit score can also affect the cost of a performance bond.

Advantages and disadvantages of performance bonds


1. Performance bonds provide an extra layer of security to a contract, assuring that the contract will be fulfilled as promised. This encourages contractors to perform their obligations in a timely and satisfactory manner.

2. Performance bonds reduce the risk for all involved parties and advocate for good faith between contractor and client.

3. Performance bonds can help protect the client from unnecessary losses in the event of a breach of contract.

4. Performance bonds assure banks, suppliers, and other creditors that they will be paid for any services provided in connection with the project.


1. The cost of performance bonds can be expensive and may pose an additional financial burden on the contractor.

2. The process of obtaining performance bonds is often lengthy and complicated, as it requires multiple forms to be completed for the bond to be issued.

3. Performance bonds are not a substitute for adequate contract language; if the contract lacked proper details at the onset, the performance bond will not be able to provide a solution.

4. Performance bonds are ultimately only as good as the surety providing them, and can fail to protect against financial hardship in the event of default. The surety company may also have specific criteria that must be met before they will issue a bond, which could complicate the process further.

5. Fraudulent use of performance bonds is also possible, as contractors may be tempted to take advantage of the additional security offered by a bond without actually performing their contracted duties. In such cases, the bond issuer could potentially be held liable for damages incurred.

Who pays for performance bonds?

Generally, a performance bond is purchased by the party who contracts for construction services. This could be an owner, general contractor, subcontractor, or any other entity that provides work related to a project.

Who issues performance bonds?

Performance bonds are typically issued by surety bond companies. These companies guarantee the completion of a project according to its contractual obligations, assuring that any financial losses caused by non-performance will be covered. Surety bond companies also provide additional services such as bonding assistance and credit counseling.

Who is the owner of a performance bond?

Performance bonds are owned by the party that requires them. Typically, a performance bond is requested by a government agency or private company when it hires contractors to provide services and goods.

How is a performance bond released?

Performance bonds are released once the project is completed, and contractors must submit a Release of Payment Bond form to their surety company. For the bond to be released, the contractor must provide evidence that all obligations under the contract have been fulfilled. The surety will then review these documents and if they are satisfied that all requirements have been met, they will issue a Release of Payment Bond.

Leave a Reply

Your email address will not be published. Required fields are marked *