What do performance bonds protect against in construction?


Sometimes also called contract bonds, performance bonds in construction is essentially a kind of insurance policy that covers the risk of a developer or contractor failing to fulfil their contractual obligations with a construction project.

There could be a number of reasons why this problem might occur, but one of the most common is when a contractor goes out of business before finishing their part of the construction work. Another situation could be that the quality of workmanship carried out by the contractor fails to meet pre-agreed standards that are laid out in the agreement. This could also be seen as a breach of contract and a claim on the performance bonds cover could be made.

If this kind of thing happened and performance bonds cover was in place, the bond would specify an amount of compensation that would be due, which would usually be used to pay another contractor to finish the job to the required standard.

How long do performance bonds last?

It can be a concern that work done by a contractor seems to meet the required standards at the time but later, after the project is completed and the contractor fully paid, is found not to. For this reason, it’s usual for performance bonds to stay in place until the defects liability period for the completed property ends. This means that this kind of eventuality is covered for the whole period of time, just in case a structural defect comes to light later that wasn’t spotted during construction.

Performance bonds are not necessarily required for every construction project, but many larger builds or developments will require this as part of the contractor’s obligation when they tender or bid for the work.

As specialists in construction insurance, we offer performance bonds cover that provides real peace of mind in development projects. Get in touch for a free, no-obligation quote today.

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Advantage Home Construction Insurance (AHCI) provides structural defects insurance – operating nationally with offices in Warrington, London and Birmingham – offering development-related insurances and a service designed to give customers peace of mind.

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