Bonds

Bonds

Bonds or guarantees are used on many construction projects in order to provide security to the employer against contractor non-performance. There are several types of bond including performance bonds, retention bonds and advance payment bonds. For more on performance security documents in construction generally, see Practice Note: Performance security in construction.

Performance bonds

There are essentially two categories of performance bond—the default (or conditional) bond and the on demand bond.

A performance bond is a contract entered into between a bank or insurance company (surety) and an employer, whereby the surety accepts liability for the performance of the contractor under a building contract. Typically for UK construction contracts the value of the bond will be 10% of the contract value.

The requirement to provide a performance bond typically arises from a provision of the building contract and is often a pre-condition to the employer entering into the building contract. The form of bond is usually attached to the contract and is in a form which is satisfactory to the employer. For more information, see Practice Note: Performance bonds—construction projects. For an example performance

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