performance bond

  

Definition

A written guaranty from a third party guarantor (usually a bank or an insurance company) submitted to a principal (client or customer) by a contractor on winning the bid. A performance bond ensures payment of a sum (not exceeding a stated maximum) of money in case the contractor fails in the full performance of the contract.

Performance bonds usually cover 100 percent of the contract price and replace the bid bonds on award of the contract. Unlike a fidelity bond, a performance bond is not an insurance policy and (if cashed by the principal) the payment amount is recovered by the guarantor from the contractor. Also called standby letter of credit, contract performance bond.


Use performance bond in a sentence

  • You may receive a performance bond if you get what you want out of a negotiation and the other person doesn't currently have the cash on hand.

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  • The performance bond essentially functioned as a loan as the exchange of money was implied and guaranteed in the arrangement.

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  • The large company decided that they would need a performance bond from us to ensure that they got their payment.

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