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Performance Bond Guide
What is a Bond?
Performance Bonds are designed to protect the employer of a contract in the event that a contractor fails to fulfil its contractual obligations. A Performance Bond is a type of Surety Bond and can also be known as a Performance Guarantee or Contract Bond.
The bond represents a percentage of the overall contract that the employer can call on in the event of the contractor defaulting on its obligations such as financial failure, delays to completion date or missed targets.
What are the typical requirements of a Performance Bond?
A Performance Bond will be based on set percentage of the contract and most commonly this will be 10%.
The contract will set out all Bond requirements including the amount of the Bond, when the Bond finishes and conditions on how the Bond can be called upon. All of these factors will determine the acceptability of a Bond wording to the Surety provider and the premium put forward.
Bonds can be issued either by an insurance company or by a bank, and the cost of the bond is usually borne by the contractor. The premium is calculated based upon the contractor’s financial strength, the Bond wording and its conditions.
I have a Retention Clause in my contract, do I still need a Performance Bond?
Retention Clauses are a standard clause in most construction contracts that see the Employer of the contract retain either 5 or 10% of the contract value in order to cover any faults in the contractor’s works.
This is not a Performance Bond and does not provide the Employer with any protection in the event of the Contractor failing to complete the project, typically due to financial failure.
It is common practice for Employers to include a Retention Clause as well as request you obtain a Performance Bond.
What information do I need to provide in order to obtain a Performance Bond?
Every contract and contractor is unique and there are various factors that will effect your ability to obtain a Performance Bond. However all Surety providers will need to see evidence of your financial strength alongside the details of the contract you are undertaking.
- We provide bespoke advice to each client but as a starting point you will need to provide us with the following information:
- Last 3 years of Profit and Loss accounts
- Most recent set of Management Figures
- Details on the company structure
- A copy of the Contract and scope of works undertaken
- A copy of the suggested Performance Bond Wording
It is vital that you provide your Surety broker with this information prior to agreeing to a Performance Bond as certain clauses or conditions within the Bond Wording may not be acceptable to the Surety market or significantly effect the premium you will be charged.
Contact us today to obtain your Performance Bond on 01732 252898 or email copies of your information to firstname.lastname@example.org
Why Clarke Williams Insurance Brokers:
- Over 50 years of experience and technical knowledge
- We are independent insurance brokers and we work for you, the customer
- All staff are UK based – No call centres
- Dedicated account managers with specialist knowledge in your industry
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- One stop shop for all your commercial and private insurance needs
We offer a free risk review service for local businesses call us today to book an appointment for one of our Performance Bond experts to attend your premises if you are based in the following areas:
Tonbridge, Tunbridge Wells, Sevenoaks, Maidstone, Central London, Bromley, Dartford, Crawley, Ashford, Canterbury, Hastings, Guildford, Brighton