Performance Bonds
A performance bond guarantees the contractor will complete the project according to the contract. If there's a default, the surety steps in to make it right.
What Does a Performance Bond Guarantee?
Performance bonds protect the project owner by ensuring the work gets done as agreed.
Contract Completion
The contractor will complete the project according to the contract terms.
Quality of Work
Work will meet the specifications and standards outlined in the contract.
Timeline Adherence
The project will be completed within the agreed timeframe.
Default Protection
If the contractor defaults, the surety steps in to resolve the situation.
Typical Bond Amounts
Performance bonds are typically set at a percentage of the contract value. The exact amount depends on what the project owner requires.
Standard Public Sector
Most municipal and provincial contracts
Full Coverage
Some private projects and high-risk work
Duration
Performance bonds remain in effect for the entire project duration plus a warranty period. Most bonds extend at least one year past substantial completion.
This extended coverage protects the owner during the warranty period when latent defects might surface.
What Happens If There's a Default?
If the contractor can't complete the work, the surety has options for how to resolve the situation.
Complete the Work
The surety may hire another contractor to finish the project.
Financial Settlement
Pay the owner the cost to have the work completed by others.
Support the Contractor
Provide resources to help the original contractor complete the work.
Performance + Labour & Material Bonds
Performance bonds and labour & material payment bonds are often required together. While the performance bond protects the owner, the L&M bond protects subcontractors and suppliers.
Together, they create a complete protection package for the project. Most tender packages that require bonding will ask for both.
Common Requirements
- 50% Performance Bond + 50% L&M Bond (standard)
- 100% Performance Bond + 100% L&M Bond (some projects)
- Both bonds issued simultaneously at contract award
Frequently Asked Questions
What does a performance bond cover?
A performance bond guarantees that the contractor will complete the project according to the contract terms. If the contractor defaults, the surety is obligated to either complete the work, hire another contractor to finish it, or compensate the owner for the cost to complete.
How much does a performance bond cost?
For a typical project, assume a 1-year duration with 50% Performance and 50% L&M bonds. The premium works out to approximately 1% of the job cost. The cost is usually built into your contract price. Your annual administration fee covers bid bonds and Agreement to Bond letters separately.
What's the typical bond amount?
Performance bonds are typically 50% or 100% of the contract value, depending on what the owner requires. Most public sector projects require 50% performance bonds, while some private projects may require 100%.
What are Single Limit and Aggregate?
Your Single Limit is a guideline for the largest single contract you can bond. Your Aggregate is a guideline covering all contracts in your backlog, both bonded and unbonded. These are guidelines, not definitive caps. If you need to bid a job above your limits, the underwriting team will review it and may ask more questions, but it doesn't mean you can't do it.
How long does a performance bond last?
A performance bond remains in effect until the project is complete and accepted, plus a warranty period. Most bonds extend at least one year past substantial completion to cover the warranty period.
Is a performance bond the same as insurance?
No. A performance bond is a three-party agreement where the surety backs the contractor's promise to perform. If a claim is paid, the contractor is typically required to reimburse the surety. Insurance transfers risk; surety provides a guarantee.
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