When Are Performance Bonds Required?
Performance bonds are one of the most common types of surety bonds in the market, particularly for construction contracts. Whilst they aren’t always required, many employers choose to ask for performance bonds in their construction projects.
Due to this, there are a number of scenarios when performance bonds are required. This article will discuss when performance bonds are required, and when clients might ask for them.
Are Performance Bonds A Legal Requirement?
Technically, performance bonds aren’t a legal requirement for a project. However, they are detailed in all standard JCT contracts, and therefore, offer a level of protection that you wouldn’t get without a bond in place.
A performance bond helps prevent the decision of an employer to increase retention. This is particularly beneficial for the principal as it alleviates vital working capital and frees up cash flow.
Why Employers Request Performance Bonds
When an employer appoints a principal contractor to undertake works, a performance bond provides an extra level of protection in the event of insolvency or non-performance of a contractor.
With a performance bond, if a contractor fails to complete the construction contract, leaves the site, doesn’t abide by their contractual obligations, doesn’t complete the work to a satisfactory standard, acts in breach of contract, or the contractor defaults or goes insolvent, then you still have the bond. The bond can be called upon to compensate the employer for any losses incurred.
Can An Employer Insist on A Performance Bond?
In most situations, an employer will insist on a performance bond, as it protects them from any losses incurred in relation to breach of contract. The employers will usually insist on a performance bond, and it’s becoming a lot more common for them to do owing to the current hardened economic market conditions.
An example of a common case where performance bonds are assisted is on affordable housing projects. The reason these schemes usually insist on a performance bond is that it protects the Housing Association and Public Purse.
Here at CG Bonds, we often work with and liaise with all parties to provide our advice and expertise to ensure the swift implementation of performance bonds on these schemes.
How Quickly Can You Get A Performance Bond?
The timeline for acquiring a performance bond does vary as it is largely dependent on the responsiveness of all parties (principal, employer, surety). Here at CG Bonds, we do have a Service Level Agreement whereby we endeavour to issue all quotations within 5-7 working days.
However, we recognise some contractors are requested for a bond just before site commencement, therefore, requiring a bond urgently. At CG Bonds, we pride ourselves in securing bonds in a timely and efficient manner.
Speak with a client account manager if you require an urgent performance bond.
