How do payment and performance bonds work together?

Payment and performance bonds work together to protect the parties involved in the contract. There are two classes of performance bonds, the contract bond and the commercial bond . The contract bond, and there are several types, is used in the construction industry.

How do I get a performance bond?

In order to get a performance bond, contractors need to apply to a surety for a letter of bondability. This non-binding letter states the monetary limits that the surety would be willing to provide to bond the contractor, based on factors like the contractor's experience and creditworthiness, and the size of the proposed project (s).

What is a performance bond?

Performance bonds are also used in commodity contracts, where a seller is asked to provide a bond to reassure the buyer that if the commodity being sold is not in fact delivered, the buyer will at least receive compensation for lost costs. The issuance of a performance bond protects a party from monetary losses due to failed or incomplete projects.