Many construction projects now require performance bonds from the developers and contractors before being awarded contracts for new developments. This guide looks at performance bonds and why the right insurance is needed to protect construction businesses and help them get the job done.
What is a performance bond?
Offering a performance bond as part of your project contract process is essentially a guarantee that you (the developer, contractor or subcontractor) will meet certain conditions of the project, usually its completion. Every project is different and so performance bonds can have tailored clauses, terms and specifics that relate to the requirements of a particular construction contract.
What happens if a contractor fails to meet the terms of their performance bond?
The performance bond is essentially a financial guarantee, so if the contractor fails to meet the terms laid out, i.e. doesn’t complete the project to the specifications required, there is a financial penalty that they need to pay.
There is also the risk that the contractor will become insolvent during the project and therefore cannot meet their obligations due to this.
Performance bonds insurance covers these risks, meaning that if the contractor cannot fulfil their obligations, there is financial protection in place so that the project can be completed via other means if necessary.
Many large construction projects now require all contractors to have performance bonds insurance before they will be awarded a contract for the work, especially where road work is required as part of the project.
How much does performance bond insurance cost?
Every project is different, which means that in order to get the right performance bonds insurance cover in place, the quote will need to be tailored to the specifics of the work required by the contract. This is to ensure that the cover is adequate for the project and so that there isn’t an avoidable shortfall in the event that the contractor cannot meet their obligations.
If you want to know more about performance bonds insurance, our team would love to hear from you. Get in touch today.