Performance and Payment Bonds are two separate bonds that are often required for both public and private contracts. While they are separate bonds, they are often included together and may also be referred to as a P&P Bond. Learn more below, and apply today through our convenient online system.
Performance Bond vs. Payment Bond
People often confuse these bonds as the same. Although payment bonds are a requirement for many construction projects along with performance bonds, they have different purposes. Let's take a closer look at each.
What Is A Performance Bond?
A performance bond is a surety bond that is issued by a bonding company or bank to guarantee satisfactory completion of a project by a contractor. It protects the owner in case the contractor fails to complete the contractual obligations. If the obligations are not met, the surety company will step in and pay the claim. Afterwards, the surety company will seek reimbursement from the contractor.
These bonds are used to safeguard the owner, contractor and the people associated with the project (i.e. the public). The government or corporate entities often require these bonds for any task where taxpayers’ investments need to be protected. In government projects, one submits an application for such projects as bridges and roads. More frequently, we are seeing private owners requiring performance and payment bonds as well. This protects the private owner from a contractor who may not be able to properly complete the work and also protects the owner from double payment (i.e. having to potentially pay subcontractors twice, due to a GC defaulting and not paying their subs).
What Is A Payment Bond?
Payment bonds are a guarantee that the contractor will pay all laborers, material suppliers, and contractors per contractual obligations.