Performance and payment bonds are types of surety bonds required
for most public and many private construction projects to
guarantee their completion. And because many prime contractors
require similar subcontract performance and payment bonds to
guarantee subcontractors' performance and payment, it is important
you understand how these bonds work.
The word "surety" suggests assurance and guarantee. That is
exactly what a surety does when a performance and payment bond is
executed in support of a construction contract—the surety
ensures and guarantees the bonded construction contract's terms and
Many surety providers also insure property, casualty and
liability. However, the extension of a surety bond is a credit
function and not an insurance policy. Unlike insurance, which
manages the severity and frequency of insurance losses through
underwriting principles, deductibles and risk-control functions
such as safety training, sureties expect the contractors they bond
to complete construction projects and satisfy all contract...
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