When Can I Release A Performance Bond?

A performance bond is released when all the underlying covenants within the bond wording and associated contract are satisfied. This is usually when practical completion (PC) of the contract is achieved, or at the end of the making good of defects (MGOD) period.

In this article we will discuss how to release a performance bond, when they expire, and other financial details of performance bonds so you can get a better understanding of how performance bonds are released.

To release a performance bond you need to provide written evidence/confirmation in form of a certificate to the bond provider that practical completion or making good of defects has been achieved. 

The bond provider will qualify this with the Employer to confirm that the bond and liability can be cancelled and released.

You pay an initial bond fee, which is non-refundable, as it covers the underwriter’s risk. Essentially, this fee compensates for the risk that the bond provider assumes and is not recoverable.

However, a performance bond serves as an alternative to the Employer increasing retention. Increasing retention on a project restricts the contractor’s vital working capital, which is essential for project completion.

The expiry of a performance bond is dependent on the beneficiary/employer’s preference, and therefore, can vary significantly. Although they typically expire on practical completion or making good of defects the time taken to achieve this varies project-to-project. Longer bond durations typically attract higher bond fees, owing to the increased risk exposure that the bond provider faces. The longer the bond duration, the higher the risk of unforeseen circumstances, such as a recession, which can complicate economic conditions.

Performance bonds are typically released upon practical completion (PC) of the contract, or at the end of the making good of defects (MGOD) period. Contracts and bond wording variances can influence how, and when, performance bonds are released/cancelled.

For more information on performance bonds, please see our dedicated performance bonds page, or contact us for a quote if you are ready to start your performance bond application.

The information provided in this blog is not intended to constitute legal advice or any other advice of a professional nature. The recipient of this information contained in this blog should always consult legal or professional advice.