Performance Guarantee

PERFORMANCE GUARANTEE ​

Performance Guarantee or Performance Bond is an agreement between a Client and a Contractor. The bank offers a guarantee to the client on behalf of a contractor that work will be done as per the agreement.

A Performance Guarantee is issued by a financial institution or bank to a contractor, to promise completion and due performance of the works of the service, as described in the contract documents. Here, the contractor provides a performance guarantee in favor of the project owner to assure their work on the project. Also, this protects the project owner against any claim; in case of non-execution by the contractor, according to their concurred terms. To elaborate further, this is a document that lawfully assures that the contractor, will complete the underlying contract. It gives certainty and enhances business confidence between the contractor and owner. 

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Businesses can make numerous types of performance guarantees. When companies subcontract some of their businesses to other companies, they want promises, specifically of performance. If a contractor fails to complete the project within time stated, the owner will be assured of compensation for any monetary losses up to the amount of the performance bond.