Performance Bonds: Everything You Should Know

performance bond

Large-scale projects, especially in the real estate industry, must be managed carefully. In this context, it is essential that a project owner ensure that the contractor meets all the contractual obligations. Here comes the use of a performance bond that provides the surety that the contractor meets the given terms and conditions of the contract.

Such a provision is highly applicable in real-estate construction projects. Additionally, industries such as technology-based and service-based also require such bonds as it stands for the guarantee that the project will be carried out on the obligations laid down by the contract.

This guide will cover everything you should need to know about these bonds.

What Are Performance Bonds?

Performance bonds can be described as financial assistance specifically considered for huge projects. This tool is especially useful in construction or real estate projects. In these industries, such instruments are beneficial to ensure that the bonded contractor completes the project as per the guidelines mentioned in the contract.

In most cases, project owners demand 100% or 50% of the contract value. In certain instances, the demand is less than 50%, and this is usually evident in service-based contracts. To sum up, a performance bond is a three-party contract in which the surety is liable for ensuring that the bonded contractor fulfills the need of the contract.

Types Of Performance Bonds

There are usually three performance bonds, including CCDC, Form 32, and SAC Headstart Subcontractor. The former refers to the standard bonds issued by the Canadian Construction Documents Committee. The latter denotes the type wherein a subcontractor issues the performance bonds. Meanwhile, Form 32 is a new word that originated specifically for contracts with a value of more than $500,000.

4 Reasons You Need Performance Bonds

Several contractors, such as civil, electrical, HVAC, janitorial, and mechanical contractors, generally seek performance bonds. A performance bond assists by providing surety of work, ensuring payment and high-quality work, and a sense of trust between the two parties. This guide will describe in brief some of the benefits.

  • Surety Of Completion Of Work

As stated above, these bonds assure that the project will be completed as per the terms laid down by the project owner. In case of a breach of the contract clause, the surety would be liable for it. Additionally, issuing this provision involves ensuring the contractor’s ability to handle the project within the stipulated period.

  • Ensures High-Quality Work

When a contractor knows that he has to abide by the bond so as not to forfeit it, it becomes extremely crucial for him to ensure high-quality work. Moreover, the contractor will do his best to handle and complete the project within the deadline.

  • Guarantees Payment

In the case of large real-estate or construction projects, there are several material vendors to provide material for construction to the contractors. If the contractor breaches the contract clause, the bond ensures payment to such unpaid material suppliers.

  • Maintains Trust Between The Parties

This financial instrument is highly significant for maintaining trust between the parties, i.e., the project owner and the bonded contractor because it guarantees the owner that the work will be completed timely and within a specific budget. Simultaneously, it becomes easier for the contractors to engage in the project.


To conclude, considering getting performance bonds is highly significant for the completion of large-scale projects as it offers assistance by guaranteeing that the project will be finished within the given time. Such bonds are helpful in numerous industries, such as commodity, service-based, and construction contracts.