Do Performance Bonds Have An Expiration Date?

Performance Bonds typically expire when the period of time specified in the bond comes to an end, or upon practical completion of the works. They can also be valid until any goods with defects are made. How long a Performance Bond lasts is usually based on the wording of the bond, which is determined when the bond is granted.

If you’re a contractor then a Performance Bond is a great way to enhance your credibility and to show that you are financially stable and committed to finishing a project. This in turn will give your clients and the project owners peace of mind, as it means their investment will be protected.

Key Features of a Performance Bond

Performance Bonds, also referred to as Performance Guarantees, are a type of Surety Bond. They provide a financial protection guarantee to ensure that parties involved in a contract, often in the construction industry, fulfill their obligations as specified in the agreement.

These bonds act as a guarantee that a project or job will be completed by the terms and conditions outlined in the contract. This Performance Bond agreement is also sometimes referred to as a Contract Bond.

Performance Bonds offer a level of protection and financial guarantee to the project owner or obligee, typically by providing financial compensation and minimising financial risk in case the contractor or principal fails to meet their contractual obligations.

For example, a contractor working with a housing association on a development for a large number of plots will very likely need to offer the housing association a Performance Bond to guarantee security and that the work will be completed.

What Happens When a Performance Bond Expires?

Typically a Performance Bond only expires when there is a longstop date detailed in the bond wording/bond contract. A Performance Bond is tied to the duration of the contract and the successful completion of project milestones such as the completion of construction projects.

If there is not a longstop date detailed in the bond, the Performance Bond remains in place and valid until bond cancellation has been achieved (usually POC or GMOD). The project completion allows the bond to be released, once all the contractual obligations and the agreed-upon performance guarantee have been fulfilled.

Can You Extend A Performance Bond?

There are certain circumstances where you may be able to extend your Performance Bond. The bond may have a clause in its wording that includes provisions for extensions or renewals under certain conditions. Other reasons you may be able to extend a Performance Bond include:

• Extend or Pay Provision

A Performance Bond may include an extension or pay provision that allows the beneficiary to request an extension of the bond’s validity period, which is useful if a project overruns.

• Bond Duration

The duration of a Performance Bond depends on the scope, complexity, and timeline of the project it is being used for. If the works overrun, the bond provider may extend it, but this can come with them charging overrun fees.

Surety companies often consider factors such as contractor performance history, financial stability, and project-specific risks when deciding whether to grant extensions or renewals of Performance Bonds.

Can You Cancel a Performance Bond Early?

Most performance bonds or guarantees can be cancelled if both parties and the surety provider agree to cancel the bond. However, there may be specific terms and conditions outlined in the construction contract that dictates the process for cancelling the bond.

It is important to review the terms of the bond agreement and consult with an advisory team such as CG Bonds to ensure that the cancellation is done in accordance with the contract.

Performance Bonds and More from CG Bonds

Calculating the length you need for your Performance Bonds depending on the predicted length of work can be confusing and frustrating for contractors, especially if you are trying to complete the application yourself. CG Bonds can help and work with the employer to understand the exact bond duration and cover required. 

Contact us today for help with your performance bond application. We are always happy to offer our unparallel advice on Performance Bonds so you can make a well-informed decision.

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.