A performance bond is a surety bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor. A surety bond is a contract among at least three parties: (i) the principal, (ii) the obligee, and (iii) the surety. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... An independent contractor is a person or business which provides goods or services to another entity under terms specified in a contract. ...

For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond. A contract is a legally binding exchange of promises or agreement between parties that the law will enforce. ... Notice of closure stuck on the door of a computer store the day after its parent company, Granville Technology Group Ltd, declared bankruptcy (strictly, put into administration—see text) in the United Kingdom. ...

Performance bonds are commonly used in the development of real property, where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor).

The term is also used to denote a collateral deposit intended to secure a Futures contract, commonly known as margin. In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ... In finance, a margin is collateral that the holder of a position in securities, options, or futures contracts has to deposit to cover the credit risk of his counterparty. ...

Performance bonds have been around since 2,750 BC and, more recently, the Romans developed laws of surety around 150 AD, the principles of which still exist.

See also

• Surety bond
• Subcontractor
• Independent contractor
• Surety Bonds
• Submittals (construction)
• Shop drawing

A surety bond is a contract among at least three parties: (i) the principal, (ii) the obligee, and (iii) the surety. ... A subcontractor is an individual or in many cases a business that signs a contract to perform part or all of the obligations of anothers contract. ... An independent contractor is a person or business which provides goods or services to another entity under terms specified in a contract. ... The word bond refers to anything that binds, fastens, or restrains. ... Submittals in Construction Management are shop drawings, material data, and samples. ... A shop drawing is a drawing or set of drawings produced by the contractor, supplier, manufacturer, subcontractor, or fabricator. ...

External links

• Surety Information Office - An association dedicated to suretyship in the United States
• Performance Bonds, How Times Change - An article addressing the past and present of the surety bond market for performance bonds.
• National Association of Surety Bond Producers - A surety bond producer/agent asssociation.