performance bond

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Related to performance bonds: Contract Bonds, Bid Bonds

Performance bond

A surety bond between two parties, insuring one party against loss if the terms of a contract are not fulfilled. Usually part of a construction contract or supply agreement.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Performance Bond

A bond that a company issues to another guaranteeing repayment in case some project fails. For example, suppose a company hires a construction firm to build an apartment building. The construction firm may issue a performance bond to the company. If the apartment building is not constructed according to specifications, the company will not incur any losses because the construction company must repay the bond. This reduces the risk to the bondholder that another party to a contract will not fulfill its obligations.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

performance bond

An insurance policy often required on government construction projects.If the contractor does not perform the work it contracted to do, the insurance company will either hire someone else to complete the job or will pay off the resulting damages, up to policy limits. Sometimes it is inaccurately called a performance and completion bond. Technically, liability under a performance bond is contingent on the contracting party paying according to the terms of its construction contract.Contrast with completion bond,where the contracting party does not have to pay anything to the insurance company,even though it might have been obligated to pay the contractor. As a result, most bonds are performance bonds and it is very difficult to obtain a completion bond.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.
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The matter was taken to court and the judge ordered CCEL to make a payment of PS420,000, equivalent to the financial value of the performance bond. The court placed Liberty in the same position as it would have been if the bond had originally been provided.
According to the new law, the 10% performance bond exemption included in the previous law can now be granted to contracts with a total value of less than $136,132; these also include contracts comprising the commencement of work or provision of consulting services.
In the event the contractor fails to present the performance bond; and the contract value ranges between $136,132 and $544,528 ($2,00,000); then the contractor will benefit from the performance bond exemption, but 10% of the contract's payable values will be held against the final performance bond until handover.
All standard form construction contracts (and many bespoke contracts) require the Contractor to submit a Performance Bond to the Employer as a form of guarantee in respect of the former's performance of the contract works.
Myth: Obtaining both a payment and performance bond costs double.
He said the blame for not checking the relationship between the contractor and the company issuing the performance bond lies with the town, but legal avenues for recovering the town's funds are being explored.
The study results suggest that the minimum contract value that requires a performance bond should be raised to between $1 million and $10 million and that the cost of performance-based prequalification is low compared to the cost of the premiums for performance bonds.

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