A performance bond obligates the surety to complete the work, arrange completion, or pay damages if the principal defaults. The obligee must typically declare default and terminate before the surety's obligation arises.
The bond penal sum caps exposure.
Alternative Names:
Performance Surety Bond, Completion Bond
Why it Matters?
Proper default declaration and termination are conditions precedent to the surety's obligation, and an owner that failed to follow the contract's notice and cure procedures may find the bond unenforceable despite a genuine default. Documenting the default, providing required notice, and terminating in accordance with the contract is what preserves the claim. Sureties routinely assert the owner's own breach as a defense.
Frequently Confused with
Related terms
Frequently asked questions
What must an owner do before claiming on the bond?
What defenses do sureties raise?
