Performance Bonds | Picayune, MS

Performance Bonds for Contractors and Contractual Projects

Winning a contract can come with requirements that must be satisfied before work begins. For certain construction and contracting projects, the project owner may require a Performance Bond as assurance that the contractor will fulfill the obligations established in the contract.

A Plus Insurance Agency is a full-service insurance agency with 18 years in business, serving commercial clients with business insurance and bond options. We help contractors explore Performance Bonds when a qualifying project or agreement requires this type of financial guarantee.

What Is a Performance Bond?

A Performance Bond is a type of surety bond designed to guarantee a contractor's performance according to the terms of a qualifying contract.

Unlike traditional insurance, which generally protects the insured against specified covered losses, a Performance Bond involves an obligation between multiple parties.

The principal is typically the contractor responsible for fulfilling the contract. The obligee is the project owner or other party requiring the bond. The surety provides the bond and guarantees the principal's qualifying contractual obligation according to its terms.

This structure makes a Performance Bond different from liability, property, or workers' compensation insurance.

Why Are Performance Bonds Required?

A project owner may require a Performance Bond to reduce the financial risk associated with a contractor failing to perform according to the applicable agreement.

Bonding requirements are commonly established before a project starts and may be included directly in bidding documents or contracts. The required bond amount and conditions can vary from one project to another.

Contractors should carefully review the project's requirements before requesting a bond. Providing the correct information helps identify what the obligee expects and prevents confusion about the type or amount of bond required.

Information to Prepare When Requesting a Bond

Performance Bonds are connected to specific contractual obligations, so the details of the project matter.

When requesting a bond, you may need to provide information about your business, the project, the contract, the obligee, and the required bond amount. Additional documentation or financial information may also be requested depending on the bond and underwriting requirements.

Preparing this information early can help make the application process more efficient, particularly when a project has a firm deadline.

A Performance Bond should be obtained based on the actual requirements provided by the party requesting it rather than assumptions from a previous project.

Performance Bonds and Contractor Insurance

Being bonded and being insured are not the same thing. A Performance Bond guarantees a qualifying contractual obligation, while contractor insurance addresses other types of business risks.

For example, General Liability Insurance may help address certain qualifying third-party bodily injury and property damage claims. Contractors using company vehicles may need Commercial Auto Insurance, while businesses with employees may need Workers' Compensation Insurance.

Reviewing bonding and insurance requirements separately can help contractors understand the purpose of each form of protection.