Performance and Payment Bond – Performance Bonds are usually coupled with Payment Bonds. Together these can be called a Contract Bond –
The two parts of the Performance and Payment Bond:
Performance Bond -
guarantees the satisfactory performance of the duties specified in the contract. Performance Bonds are commonly used in construction contracts but are also used in other types of contracts where the risk of non-performance by the contractor is very costly to the obligee.
Payment Bond -
provides protection to project-related creditors (subcontractors and suppliers) but also provides protection to the owner or obligee on the project so that they aren’t faced with liens (on private projects) on the project forcing them to pay for work twice in the case where the contractor was already paid for the work.
Payment Bond provides protection to project-related creditors (subcontractors and suppliers) but also provides protection to the owner or obligee on the project so that they aren’t faced with liens (on private projects) on the project forcing them to pay for work twice in the case where the contractor was already paid for the work.
Performance Bond provides protection to the owner/obligee ensuring that the contractor will fulfill the contract. Thus, the bond provides protection against breach of contract.
Performance and Payment Bonds are used as common practice in construction projects:
- On federal contracts, they are required by law by the Federal Government to protect the taxpayer, subcontractors and suppliers under The Miller Act of 1935.
- At the state level, each state has adopted its own version of this act. Those are commonly referred to as Little Miller Acts. Many States have also adopted a common standard Construction Bond form to be used.
- Private projects – Performance and Payment Bonds are also commonly used to ensure the owner and any interested parties are left with a complete and lien-free project.
The ProSure Group handles all these types of bonds everyday.
The ProSure Group has issued Performance and Payment Bonds with many other contracts. Some examples of contracts where performance bonds (and sometimes payment bonds) are written:
- Construction Bonds on Projects of all types
- Landscape and Land care Contract Bond
- Roadside Mowing and Tree Services Contract Bonds
- Food Service Contract Bonds
- Janitorial Service Contract Bonds
- Computer Service Contract Bonds
- Software Supply and Installation Bonds
- Garbage Handling Bonds
- Recycling and Removal Bonds
- Land Fill Closures Bonds
- Borrow Pit Reclamation Bonds
- Wetland Mitigation Bonds
- Garbage Transfer Station Bonds
- Accounting Services Bonds
- Services for the Lottery
- Health Care Services
- Personnel Services
- Signage and traffic service contracts
- many, many other types of service contract bonds
- Banks often times require these bonds from the General Contractor on construction projects and are asked to be named on the bonds as a Dual Obligee.
- General Contractors also require Performance and Payment Bonds from their subcontractors –
These Subcontractor Payment and Performance Bonds – ensure that they will complete the contract and pay their related subs and suppliers. These are very important to the General Contractor to mitigate and manage this large amount of subcontractor risk
- Local and state governments – where work is being done in their Right of Way – many times require a bond to ensure that work is completed – or require to be named as a dual obligee in case a Performance and Payment Bond is already in place. These may also be considered Right of Way Bonds – or Completion Bonds and can change the complexion of the overall obligation under a Performance and Payment Bond. – you should contact an expert here at The ProSure Group to further discuss this scenario.