Contractor Performance Bonds

Performance bonds, also known as contract bonds, are a common requirement in construction projects. These surety bonds can help to protect project owners from financial losses and ensure that projects are completed on time and according to the agreed-upon specifications. Merchants Bonding Company’s surety-only focus and common-sense underwriting philosophy make us a leading source to fulfill contractors’ bonding needs.

What's a Performance Bond?

The performance bond is a legally binding contract between the surety, the contractor (principal), and the project owner (obligee). The contract lays out the details of a project, that all parties agree upon, as well as the timeline for the project.

How Do You Get a Performance Bond?

Surety bonds are obtained through insurance agents. If contractors don’t have an agent, they can use a tool like Merchants’ Find an Agent. The agent will guide the contractor through the process, informing them about documents and information needed by the surety to underwrite the bond.

How is the Bond Size Determined?

The size of the bond is typically 100% of the total contract price.

What Happens if a Contractor Violates the Bond Terms?

If the contractor doesn’t abide by the terms of the contract and fails to complete the project, the project owner can file a claim to cover losses they incur. The contractor, per the indemnity agreement, is then obligated to pay back the surety company for the amount of the claim.

Why are Performance Bonds Necessary?

Surety bonds protect on many levels. Performance bonds can help protect project owners from financial losses, they protect the quality of work since specifications are laid out and agreed upon, and they help protect a project’s timeline.  

Key Features of a Contractor Performance Bond

  • Protects the project owner from financial losses if the contractor breaches the contract.

  • Helps to ensure that projects are completed on time and according to the agreed-upon specifications.
  • Can help to attract qualified contractors to bid on projects.
  • Can help to reduce the amount of risk a project owner takes on.

What is a Surety Bond?

A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.