When you are awarded a contract, there is often a performance bond required. This bond guarantees that the contractor will complete the project according to the agreed-upon specifications. So, who signs the performance bond? The answer may surprise you!

 

How do performance bonds work?

Performance bonds are a type of surety bond. They are typically used in construction contracts, where they protect the owner if the contractor fails to complete the project or meet the terms of the contract.

Parties involved in performance bonds

There are three primary parties involved in a performance bond: the obligee, the principal, and the surety. The obligee is the entity that requires the bond, typically a government agency. The principal is the party who will be performing the work specified in the contract. The surety is the company that provides the bond and guarantees that the principal will perform the work as specified.

How do I fill out a performance bond?

If you have been asked to provide a performance bond, you may be wondering how to fill it out. The process is quite simple. Here are the steps you need to take:

Step One: Determine the amount of the bond. The amount of the bond will be specified in the contract. It is typically a percentage of the total value of the project.

Step Two: Find a surety company that is willing to provide the bond. The surety company will need to review the contract to determine whether they are willing to provide the bond.

Step Three: Fill out an application with the surety company. The application will ask for information about your business, including financial information.

Step Four: Pay the premium for the bond. The premium is the fee that you will pay to the surety company for providing the bond.

Step Five: Sign the bond. Once you have paid the premium, you will need to sign the bond. This is a legally binding agreement between you and the surety company.

Who signs the performance bond?

The answer may depend on the type of project and who is requiring the bond. For example, if the project is privately funded, then the owner may sign the bond. If the project is publicly funded, then a government entity may sign the bond. The surety company that provides the bond will also have to sign it. Ultimately, though, it is the contractor who is responsible for ensuring that the project is completed according to the terms of the contract. If the contractor fails to do so, then they will be required to pay damages to the entity that signed the bond.

Who will pay for the performance bond?

The surety company that issues the bond will require the principal (the party requesting the bond) to pay a premium, which is generally a percentage of the total bond amount. The premium is paid upfront and is non-refundable.

What happens when a performance bond is called?

If you are a contractor, it is important to be aware that if a performance bond is called, you will be responsible for repaying the surety company any money they have paid out on your behalf. This can put you in a difficult financial position, so it is important to make sure that you are able to fulfill your obligations under the construction contract before you enter into it.

Who is the principal in a performance bond?

The principal in a performance bond is the surety, which is the company or individual guaranteeing that the contractor will complete the project according to the terms of the contract. The surety provides the performance bond to the obligee, which is usually the owner of the project. If the contractor defaults on the contract, the surety pays damages to the obligee up to the amount of the bond.

How a surety company will handle a call on a performance bond?

As the obligee, you are the one who calls the surety company when a contractor defaults on their obligations. The surety company will then investigate to determine if the call is valid. If they determine that it is a valid claim, they will take steps to remedy the situation. This may include paying for any outstanding work or finding a new contractor to complete the work. In either case, the surety company will work to minimize any losses incurred by the obligee.