Performance Bond QuotesContract surety for contractors

Bond guide

Performance bonds for contractors

A performance bond guarantees an owner that the contractor will complete the work according to the contract.

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How it works

The contractor (principal) buys the bond from a surety for the benefit of the owner (obligee). If the contractor fails to perform and the owner properly declares default, the surety is obligated to respond under the bond terms. Any money the surety spends is recoverable from the principal and indemnitors.

Who requires it

  • Public owners at the federal, state, and local level
  • Private developers and lenders on larger projects
  • General contractors requiring bonds from major subcontractors
  • Utilities and institutional owners such as schools and hospitals

Surety options in a default

  • Finance the original contractor to finish
  • Tender a replacement contractor to the owner
  • Take over and complete the project
  • Pay the owner up to the penal sum
  • Deny the claim if default is not established

How to qualify

Sureties review credit, financial statements, work in progress, experience on similar jobs, and bank support. For larger bonds, CPA-prepared statements are standard. See bonding capacity and how to get bonded.

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Frequently asked questions

What happens if the contractor defaults?

The obligee notifies the surety and declares default under the contract. The surety investigates and may finance the original contractor, arrange a replacement, take over the work, or pay the obligee up to the penal sum.

Is the bond amount the contract amount?

Often the penal sum equals 100% of the contract price, but the owner sets the requirement.

Does a performance bond cover warranty work?

Some bond forms include a warranty period; others require a separate maintenance bond.

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Last updated October 15, 2026 · How we research