A construction performance bond, also known as a contract bond, is a type of surety bond often used in the construction industry. It is a three-party agreement among the project owner (obligee), the contractor (principal), and the surety (the party providing the bond).
The purpose of a construction performance bond is to provide financial protection to the project owner in the event that the contractor fails to perform according to the terms and conditions of the contract. If the contractor defaults, the bond allows the project owner to recover financial losses incurred due to the contractor's failure to complete the project or perform as specified in the contract.
In essence, the bond serves as a guarantee that the contractor will fulfill their obligations, and if they do not, the surety will step in to ensure that the project is completed, either by hiring a new contractor or compensating the project owner for the financial losses incurred.
Construction performance bonds are commonly required on public construction projects and are sometimes used in private construction projects as well to provide assurance to project owners that the work will be completed as agreed. The specific terms and conditions of the bond may vary based on the project and the parties involved.
New home construction bonding is required by lenders and are administered by material houses Honsador Lumber and HPM Building Supply.