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:
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.
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'
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.
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.)
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:
We’ll also need some details about your company since a credit check is part of the process:
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.
The Installsure team is here to help with all your performance bond enquiries. Get started by completing a Performance Bond Application.