What a performance bond does
A performance bond gives the project owner financial security if the contractor does not perform its obligations under the contract. The amount, validity and the conditions for invoking the bond are set by the contract.
Traditionally many contractors have provided this security as a bank guarantee. Surety bonds issued by insurers are an alternative instrument for some contracts, provided the project owner accepts them.
Points to check in the contract
Read the security clauses closely: the form of bond the owner will accept, the percentage of contract value, the validity period, extension requirements and the wording of the invocation clause.
Confirm early with the owner whether an insurance surety bond is acceptable for that specific contract.
What insurers usually look at
Surety underwriting focuses on the contractor's financial strength, track record of similar projects and current order book. Expect requests for financial statements, project details and information on existing guarantee commitments.
Preparing this information in advance shortens the time between tender award and issue of the bond.
This article provides general information only and is not advice on any specific policy or risk. Insurance is subject to terms, conditions, exclusions and applicable regulations.