"Performance Bond Form"

What Is a Performance Bond?

A Performance Bond is a formal document that confirms the surety's obligation to make a payment towards the owner of a construction project in case the contractor hired to work on the project failed to comply with their responsibilities outlined in the construction contract. If the contractor is unable to finish the project or delays the schedule set in writing, the customer can launch a claim against them and demand compensation for money or time lost.

Alternate Name:

  • Contract Bond.

Whether you work in a private or public sector, a document of this kind will protect your reputation, build a good working relationship with the customer who will choose you for other projects in the future, and confirm your trustworthiness to the financial institution if no claims are made on your bond. It helps the construction company to establish themselves as a respectable business and ensures the client can enter into any agreements with them without massive financial risks.

A Performance Bond template can be downloaded below. Note that if you represent a government entity or you offer your construction experience to public institutions, it is necessary to fill out an alternative form - GSA Standard Form 25, Performance Bond.

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Bid Bond Vs Performance Bond

Both a Bid Bond and a Performance Bond are indispensable for construction projects - they safeguard the financial interests of the parties as part of risk management which is of particular importance if the contractor and the client do not know each other well. While the Bid Bond is needed to guarantee the contractor will perform the job in question, the Performance Bid is prepared by the winning bidder in addition to the main agreement between the contractor and the customer to make sure the latter knows the project will be finished on time and in accordance with all the expectations listed in writing. The moment of signing also varies: prepare the Bid Bond during the bidding process and sign the Performance Bond once the owner of the project chose you as the contractor.

How to Get a Performance Bond?

Follow these steps to obtain a Performance Bond:

  1. Find the surety company that would be willing to vouch for your work on the construction project. Ideally, you can work with a financial institution that knows you for years as a client and will be prepared to offer you the most suitable rates. However, any bond surety or insurance provider would do as long as they confirm your business aims to perform the job correctly and on time judging by your professional experience and positive credit score.
  2. Discuss the terms and conditions of the Performance Bond. If the contractor breaches the agreement they signed with the client, the surety will have to act to deal with this issue - there are multiple options but often the surety would arrange for the completion of the project to satisfy the demands of the customer and later submit a claim to obtain compensation from the breaching party.
  3. Make sure the text of the Performance Bond form contains all necessary details: identification of the parties (the names and addresses should be enough), amount of money issued to cover the bond, list of the contractor's and surety's rights and obligations, duration of the bond and the time limit for any of the parties to submit a claim regarding the bond.
  4. Consider notarizing the document - bring it to the notary public and sign it. The Performance Bond insurance must bear the signatures of the contractor and the company that secures the bond.

How Much Does a Performance Bond Cost?

The Performance Bond cost differs from project to project based on different factors: the skills and experience of the contractor, the conditions of the contract, and the duration of the planned project. Additionally, an insurance company or bank will be inclined to offer more favorable terms to their loyal customers or contractors with healthy balance sheets. In most cases, the cost of the Performance Bond does not exceed 1% of the contract price. If the construction business cannot confirm their strong financial performance or the estimated cost of the work is lower than $1 million, the parties may negotiate a different bond amount.


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Performance Bond Form
Bond Number: _______________________
KNOW ALL PERSONS BY THESE PRESENTS, that we, _______________________,
as principal, (hereinafter referred to as the “Principal”), and _______________________,
a _______________________ corporation, as surety, (hereinafter referred to as the
“Surety”), are held and firmly bound unto _______________________, as Obligee, in the
sum of $_______________________ for the payment whereof said Principal and Surety
bind themselves, jointly and severally, as provided herein.
WHEREAS, the Principal has entered into a Contract with Obligee dated
_______________________, to perform _______________________ work for ________
_____________________________________ (hereinafter referred to as the “Contract”).
NOW, THEREFORE, the condition of this obligation is such that if Principal shall
promptly and faithfully perform the work to be performed under the Contract, and shall
promptly make payment to Claimants, as hereinafter defined, for all labor and material
actually used, consumed, or incorporated in the performance of the work under the
Contract, then this obligation shall be null and void; otherwise to remain in full force and
effect.
Surety’s obligations hereunder to Obligee shall not arise unless Principal is in default
under the Contract for failing to perform the work, and has been declared by Obligee to
be in default under the Contract for failing to perform the work, and Obligee has
performed its obligations under the Contract. In such event, Surety shall have a
reasonable period of time to:
1. Upon entering into an acceptable written takeover agreement with Obligee,
undertake to perform and complete the work to be done under the Contract, or
2. Obtain bids or negotiated proposals from qualified contractors for a contract for
completion of the work to be done under the Contract, arrange for a contract to be
prepared for execution by Obligee and contractor, to be secured with performance
and payment bonds executed by a qualified surety, or
3. Waive its right to perform or complete the work pursuant to paragraphs 1 and 2
above, and with reasonable promptness under the circumstances:
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Performance Bond Form
Bond Number: _______________________
KNOW ALL PERSONS BY THESE PRESENTS, that we, _______________________,
as principal, (hereinafter referred to as the “Principal”), and _______________________,
a _______________________ corporation, as surety, (hereinafter referred to as the
“Surety”), are held and firmly bound unto _______________________, as Obligee, in the
sum of $_______________________ for the payment whereof said Principal and Surety
bind themselves, jointly and severally, as provided herein.
WHEREAS, the Principal has entered into a Contract with Obligee dated
_______________________, to perform _______________________ work for ________
_____________________________________ (hereinafter referred to as the “Contract”).
NOW, THEREFORE, the condition of this obligation is such that if Principal shall
promptly and faithfully perform the work to be performed under the Contract, and shall
promptly make payment to Claimants, as hereinafter defined, for all labor and material
actually used, consumed, or incorporated in the performance of the work under the
Contract, then this obligation shall be null and void; otherwise to remain in full force and
effect.
Surety’s obligations hereunder to Obligee shall not arise unless Principal is in default
under the Contract for failing to perform the work, and has been declared by Obligee to
be in default under the Contract for failing to perform the work, and Obligee has
performed its obligations under the Contract. In such event, Surety shall have a
reasonable period of time to:
1. Upon entering into an acceptable written takeover agreement with Obligee,
undertake to perform and complete the work to be done under the Contract, or
2. Obtain bids or negotiated proposals from qualified contractors for a contract for
completion of the work to be done under the Contract, arrange for a contract to be
prepared for execution by Obligee and contractor, to be secured with performance
and payment bonds executed by a qualified surety, or
3. Waive its right to perform or complete the work pursuant to paragraphs 1 and 2
above, and with reasonable promptness under the circumstances:
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○ After investigation, determine the amount for which it may be liable to the
Obligee and, as soon as practicable after the amount is determined, tender
payment therefor to the Obligee;
○ Deny liability in whole or in part and notify the Obligee citing reasons
therefore.
4. The Contract balance, as defined below, shall be credited against the reasonable
cost of completing the work to be performed under the Contract. If completed by
Obligee pursuant to paragraphs 2 or 3 above, and the reasonable cost of
completing the work exceeds the Contract balance, Surety shall pay to Obligee
such excess, but in no event shall the aggregate liability of Surety exceed the
amount of this bond. If Surety completes the work pursuant to paragraph 1 above,
that portion of the Contract balance as may be required to complete the work to be
done under the Contract and to reimburse Surety for its outlays shall be paid to
Surety at the times and in the manner as said sums would have been payable to
Principal had there been no default under the Contract. To the extent that Surety’s
outlays exceed the Contract balance paid to Surety by Obligee, Surety shall be
entitled to a dollar for dollar reduction of its liability under this bond, and Surety’s
aggregate liability shall not exceed the penal sum of this bond. The term “Contract
balance” as used herein shall mean the total amount payable by Obligee under the
Contract and any amendments thereto, less the amounts properly paid by Obligee
to Principal under the Contract. The term “work” as used herein shall mean the
providing of all labor and/or material necessary to complete Principal’s scope of
work under the Contract. Notwithstanding any language in the Contract to the
contrary, the Contract balance shall not be reduced or set off on account of any
obligation, contractual or otherwise, except the reasonable cost incurred in
completing the work.
5. Any suit by Obligee under this bond must be instituted before the earlier of:
○ The expiration of one year from the date of substantial completion of the
work, or
○ One year after Principal ceased performing the work, excluding warranty
work. If the public works bond statutes in the location where the work is
being performed contains a statute of limitations for suits on the
performance bond, then the limitation period set forth herein shall be read
out of this bond and the statute of limitation set forth in the public works
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bond statutes shall be read into this bond. If the limitation set forth in this
bond is void or prohibited by law, the minimum period of limitation
available to sureties as a defense in the jurisdiction of the suit shall be
applicable and said period of limitation shall be deemed to have accrued
and shall commence to run no later than the date of substantial completion
of the work, or the date Principal ceased performing work, excluding
warranty work, whichever occurs first.
6. A Claimant is defined as one other than Obligee having a contract with Principal
or with a direct subcontractor of Principal to supply labor and/or materials and said
labor and/or material is actually used, consumed or incorporated in the
performance of the work under the Contract.
7. Principal and Surety hereby jointly and severally agree with Obligee that every
Claimant as herein defined who has not been paid in full before the expiration of a
period of ninety (90) days after the date on which the last of such Claimant’s work
or labor was done or performed or materials were furnished by such Claimant,
may bring suit on this bond, prosecute the suit to final judgment for the amount
due under Claimant’s contract for the labor and/or material supplied by Claimant
which was actually used, consumed or incorporated in the performance of the
work, and have execution thereon; provided, however, that a Claimant having a
direct contractual relationship with a subcontractor of Principal shall have a right
of action on this bond only if said Claimant notifies Surety in writing of its claim
within ninety (90) days from the date on which said Claimant did or supplied the
last labor and/or materials for which the claim is made. Obligee shall not be liable
for the payment of any costs or expenses of any such suit.
8. No suit or action shall be commenced hereunder by any Claimant after the
expiration of the earlier of:
○ One year after the day on which Claimant last supplied the labor and/or
materials for which the claim is made; or
○ The limitation period set forth in the public works bond statutes, if any, in
the location where the work is being performed.
Any limitation contained in this bond which is prohibited by any law controlling
in the state where the suit is filed shall be deemed to be amended so as to be equal
to the minimum period of limitation permitted by the law of that state, and said
period of limitation shall be deemed to have accrued and shall commence to run
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on the day Claimant last supplied the labor and/or materials for which the claim is
made.
9. No suit or action shall be commenced hereunder by Obligee or any Claimant other
than in a state court of competent jurisdiction in the county or other political
subdivision of the state in which the project, or any part thereof, is situated, or in
the United States District Court for the district in which the project, or any part
thereof, is situated, and not elsewhere.
10. The amount of this bond shall be reduced by and to the extent of any payment or
payments made by Surety in good faith hereunder whether made directly to
Obligee or Claimant(s) or otherwise in discharge of Principal’s obligations.
Surety's liability hereunder to Obligee and all Claimants is limited, singly, or in the
aggregate, to the penal sum of the bond set forth herein. Surety may, at its option,
discharge all obligations under this bond by interpleading into the registry of any
court of competent jurisdiction of the full unused penal sum of this bond, or such
portion thereof that will satisfy the obligations owed to Obligee and/or
Claimant(s). No right of action shall accrue on this bond to any person or entity
other than Obligee and/or Claimant(s). The bond shall not afford coverage for any
liability of Principal for tortious acts, whether or not said liability is direct or is
imposed by the Contract, and shall not serve as or be a substitute for or
supplemental to any liability or other insurance required by the Contract.
11. This bond is provided to comply with a statutory or other legal requirement for
performing contracts for public owners in the location where the work is being
performed. Except as provided in paragraphs 5 and 8 above, all provisions in the
bond which are in addition to or differ from those statutory or legal requirements
shall be read out of this bond, and all pertinent statutes and other legal
requirements shall be read into the bond. This bond is a statutory bond, not a
common law bond.
Signed and sealed this ____ day of ___________ 20___________.
_________________________________
_________________________________
Principal
Attorney-in-Fact
_________________________________
_________________________________
Signature
Signature
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