Performance Bond
A surety guarantees the contractor will finish the job as contracted.
What it means
A performance bond is a surety bond guaranteeing that the contractor will complete the project according to the contract. If the contractor defaults, the owner can call on the surety, which may finance the contractor's completion, bring in a replacement, or pay damages up to the bond amount. Performance and payment bonds are usually issued together, and the bond's protection runs to the owner — the obligee — not to the contractor who buys it.
Why it matters before you sign
A performance bond changes who stands behind completion — owners should confirm the surety is solvent and licensed, and contractors should remember they must reimburse the surety for what it pays out.
In a contract, it looks like this
After the GC abandoned the project, the owner made demand on the performance bond and the surety brought in a completion contractor.
This definition is a general, educational explanation — not legal advice. XOsign provides AI-assisted document tools and does not provide legal advice; consider consulting a qualified attorney for guidance on your specific situation. Requirements vary by state.
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