What is the main purpose of a performance bond?

The primary purpose of a performance bond is to guarantee the completion of a project according to the terms specified in the contract. This bond is a financial assurance provided by a surety company that the contractor will fulfill their obligations, such as meeting deadlines, adhering to quality standards, and completing the project scope as agreed. If the contractor fails to do so, the surety company is responsible for compensating the project owner for any financial losses incurred due to the contractor's non-performance, which may include hiring another contractor to complete the work.

This mechanism offers peace of mind to project owners, ensuring that their investment is safeguarded and that there is recourse if the project does not proceed as planned. Timely payments, protection of subcontractors, and insurance against theft, while important aspects of construction projects, do not encapsulate the primary role of a performance bond, which focuses specifically on ensuring that the project is completed as per the contract terms.