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HOW PERFOMANCE BONDS WORK?

A Performance Bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of, or performance on a project by a Contractor. These are generally three party agreements as outlined below:

  • The Principal – the primary person or business entity who will be performing a contractual obligation.
  • The Obligee – the party who is the recipient of the obligation.
  • The Surety – who ensures (guarantees) that the principal’s obligations will be performed.

For example, a General Contractor “Principal” may be required to provide a Performance Bond in favor of a project Owner “Obligee” in order to secure a certain contract. If the Principal fails to perform his or her duties under the contract specifications, the Obligee may call upon the Surety to cure the problem or make payment(s) out of the Performance Bond. These payments are for damages up to the limit of the Performance Bond.

In the same way, a Subcontractor may be required to provide a Performance Bond in favor of a General Contractor “Obligee” in order to secure a certain subcontract. If the Principal fails to perform his or her duties under the subcontract specifications, the Obligee may call upon the Surety to cure the problem or make payment(s) out of the Performance Bond. These payments are for damages up to the limit of the Performance Bond. When Subcontractors provide Performance Bonds to General Contractors it is also called “bonding back”.

As with any surety bond, if there is a default which results in loss by the Surety Company, the Surety will expect the Principal to repay any monies paid out by the Surety in the event of a claim. Surety Bonds are NOT insurance.

Performance Bonds at Mwananchi Credit Limited.

Contact our experts today for a free consultation. We are experienced in the inner workings of and requirements of Performance Bonds in all arenas. We can give clients an understanding of what will be required as well as costs associated with Performance Bonds. We can determine what the clients maximum bonding capacity is. During this process, we can even provide a quick lesson on how Performance Bonds work. Our customers return each time a Performance Bond is required because of the service and knowledge our staff is able to offer regarding their Performance Bond requests.



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