Performance bonds—construction projects


Produced in partnership with Kennedys
Practice notes

Performance bonds—construction projects


Produced in partnership with Kennedys

Practice notes
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This Practice Note examines the nature of performance bonds, why they are required and where they fit into the suite of documentation commonly required for any construction project. The Practice Note also addresses practical issues relevant to the negotiation and drafting of bonds.

For guidance on making a call under a bond, see Checklists: Calling on a conditional bond—checklist and Calling on an on demand bond—checklist.

The basic structure of a performance bond arrangement

A performance bond is a contract whereby:

  1. •

    in relation to a building contract entered into by a building contractor and its appointing employer, ie the beneficiary

  2. •

    a third party ('the surety’) accepts liability for the performance of the contractor under the building contract (to the extent of the obligations described in the performance bond)

If the surety is required to make a payment to the employer under the performance bond, the surety is likely to have common law rights to reimbursement from the contractor, but this is usually confirmed by way of a written indemnity agreement, entered into by the contractor in favour of the

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Jurisdiction(s):
United Kingdom
Key definition:
Bonds definition
What does Bonds mean?

A certificate of debt issued, eg by a government or a company.

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