Contract Glossary
Performance Bond
Definition
A guarantee — typically issued by a surety company or bank — that a contractor will complete a project according to the contract terms. If the contractor defaults, the bond pays for completion. Common in construction and government contracts.
In Practice
If you're awarding a $2 million construction contract, a performance bond (usually 10–100% of the contract value) protects you if the contractor walks away, goes bankrupt, or does substandard work. The surety either finds a new contractor or pays the bond amount. Government contracts over $150,000 in the U.S. require performance bonds under the Miller Act.
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Frequently asked questions about performance bond
Typically 1–3% of the contract value per year. A $1 million contract might cost $10,000–$30,000 for the bond premium. The exact rate depends on the contractor's creditworthiness, experience, and the project's risk profile. Contractors with strong track records get lower rates.
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Create your contractThis content is for informational purposes only and does not constitute legal advice. For contracts with significant financial or legal implications, review by a qualified attorney is recommended.