Are you unsure what the difference is between a performance bond and payment bond? Let us give you some helpful tips and info to help you out on your next construction project.
What is a Performance Bond?
Briefly, this is a legal document supplied by the insurance company guaranteeing that a contractor will finish the construction project in accordance with the contract documents. The insurance company charges a premium to supply this guarantee Bond. It is important to note that this PERFORMANCE BOND does NOT guarantee the payment of all invoices, it merely guarantees the project will be completed if the contractor should default on their obligations.
What is a Payment Bond?
This is a legal document provided by an insurance company that guarantees that the invoices connected with the project will get paid. These Payment Bonds are normally supplied as a “sister” document to the Performance Bond to provide full circle coverage. Note that the PAYMENT BOND by itself does NOT guarantee the completion of the project. It merely guarantees that legitimate invoices directly connected to the project will be paid to protect the owner from liens.