CONTRACT PERFORMANCE BONDS
Contract Performance Bonds
Types of CBs
Bid Bonds
An irrevocable bond usually submitted with a tender for a project as a sign of good faith on behalf of the contractor they will fulfill their commitment to the contract. Bid bonds often revert to contract performance bonds automatically in the event the contractor is awarded the contract.
Retention Release Bonds
Construction contracts will invariably allow the principal to withhold a percentage of progress claims against any possible future default on behalf of the contractor. Such retention is a cumbersome and costly detriment to a contractors cashflow. Retention Release Bonds are a bond on behalf of the contractor in favour of the principal in return for the full value of the progress payments being released.
Contract Performance Bonds. It makes good sense.
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Contract Performance Bonds
Provide relief to a developer/principal to a contract in the event the contractor was to fail to meet their obligations. Contract Performance Bonds are usually a percentage of the contract value, say 5 or 10%, and can run to very large sums of money. These bonds usually run for the life of the contract at hand.
Advance Payment Bonds
Less frequently used but none less an important tool in the construction industry. Advance Payment Bonds are used to secure funds advanced to a contractor by the principal to purchase equipment or site establishment.