Construction Performance Bond? What is it and the cost?

21/02/2020, 15:08 PM by Frank Allain
Construction site workers crane
Answers to all your questions about performance bonds for construction projects.


Performance bonds have long been a requirement for many large scale commercial installations. Lately, however, we're seeing them requested more and more for smaller sized construction projects too. 

That means installation companies may find they need to source a performance bond for the first time. 

They’ll likely have many questions. Time is critical at the tender stage of a project so in this piece we’ve collected the answers to the most important performance bonds questions: 

  • What is a construction performance bond? 
  • How does a construction performance bond work? 
  • When would you need a performance or contract bond?
  • What is the cost of performance bonds in construction?
  • How can I source a performance/contract bond for a construction project?
  • How quickly can I get a performance bond for a project?

Find the answers below in our simple guide to performance bonds in UK construction, including of course how to apply for a performance bond with Installsure.

Need a performance bond urgently? Phone our team on 020 7645 3744 or send us a message so we can get back to you.

What is a construction performance bond?

A performance bond for a construction project (also known as a contract bond) effectively guarantees satisfactory completion of a project by a contractor.

The bond protects the insured party should a contracted entity fail to meet its obligations as set in out in the contract between the insured and the contractor.

Quite often the investor or owner will ask for a performance bond to guarantee that the value of the work won’t be lost should anything unforeseen happen. 

Good to know: performance bonds are also known as contract bonds.


men in safety clothing hardhats documents

How does a construction performance bond work?

A lot of the time a company will insist on a performance or contract bond to protect itself against a contractor going insolvent before they finish a job, which is when the bond kicks in. 

However, the release of the performance bond can also occur if the contractor can’t follow the agreed spec on the build and compensation is required for any losses that result.

A performance bond can be either 'on demand' or 'conditional' 

  • On demand bonds are an amount of money set out in the bond immediately on demand in writing without needing to satisfy any preconditions whatsoever (including establishing the contractor’s liability) unless the demand is fraudulent. 
  • Conditional bonds require that the client provides evidence that the contractor has not performed their obligations under the contract and that they have suffered a loss as a consequence.

What is the cost of performance bonds in construction?

Construction performance bonds are typically for 10% of the contract value. Rates are around 12 per cent for a 12-month period for a secure company. Longer periods can attract higher rates.

Most employers realise they will pay for the performance bond through a higher contract price. Usually they ask for the cost to be shown separately. Some employers use the ability to get a performance bond and the rate offered as part of their selection process.

When would you need a performance or contract bond?

Construction performance bonds are often required in tenders for commercial and Local Authority contracts, as well as being pretty common in real estate development. Whether or not a performance bond is required will depend on the perceived financial strength of the party bidding to win the contract.

If you're bidding for a construction job, don't be surprised if you're asked to provide performance bonds and payment bonds as a guarantee for the completion of a project. (Installsure can also source payment bonds for you - talk to our team if you require these.)

Not sure what type of bond you need? Talk to our team today by calling 020 7645 3744 or send us a message and we'll get back to you.

man writing on tablet

How can I source a performance/contract bond for a construction project?

  1. Complete and return the Installsure Performance Bond Application Form
  2. Be prepared to provide additional information which might be required including:

    1. A Work In Progress (WIP) form showing your previous and current contracts to establish your experience
    2. A bank account summary form for the last 12 months showing maximum, minimum and average balances of the company’s cash resources
  3. Once our insurers have all the information they require, we will assess the quotes available and summarise these for you.
  4. Once we have agreed the Bond Provider with you, all documents (see below) and payment must be made in advance of the performance bond being issued.
Get started today – download the Installsure Performance Bond Application Form or call our team on 020 7645 3744.

What paperwork do I need to provide when applying?

To apply for a performance bond through Installsure, start by completing and submitting the Installsure Performance Bond Application Form

So we can best provide a range of construction performance bond cost quotes you’ll need to give us as much information as possible about the job, including:

  • Value of contract
  • Copy of performance bond wording required by the relevant body
  • Expiry date of the bond which will be either the date of Practical Completion of your contract or the end of any defects period

We’ll also need some details about your company since a credit check is part of the process:

  • Copy of your latest published accounts
  • If the company’s assets do not exceed the performance bond we might also need details of other companies owned by the same shareholders that could provide support, or details of the personal assets of the Directors.

How quickly can I get a performance bond for a project?

Applying for a construction performance bond with Installsure is pretty straightforward. If we have all the paperwork to hand we can typically complete the process in 7-14 working days. 

We’ll talk you through each stage and keep you updated so you know when to expect the cover to be in place.

Installsure performance bond application form

Do you need a performance bond for your construction contract?

The Installsure team is here to help with all your performance bond enquiries. Get started by completing a Performance Bond Application.

If you need help applying for a performance bond or simply want to know more about this kind of insurance cover, give us a call on 020 7645 3744 or send our team a message.