What does a performance bond guarantee?

A performance bond guarantees that a contractor will complete the project according to the terms set forth in the contract. This assurance provides financial security to the project owner, as it ensures that if the contractor fails to fulfill their contractual obligations, the bonding company will cover the costs of hiring another contractor to complete the work or compensate for any losses incurred.

This is particularly critical in construction projects, where timelines, budgets, and quality standards are essential for both the contractor's reputation and the owner's investment. In contrast, while quality assurance, payment for subcontractor services, and compliance with local building codes are important aspects of the construction process, they do not specifically encapsulate what a performance bond is designed to ensure. A performance bond focuses primarily on the completion of the project as per the agreed terms.