What Is a Performance Bond?

A performance bond is a type of surety bond required to guarantee that a contractor will complete a project according to the terms of the contract. It involves three parties:

• Principal (Contractor): The party performing the work.

• Obligee (Project Owner): The party requiring the bond to ensure the project is completed.

• Surety: The institution providing the bond as a financial guarantee.

This bond safeguards the project owner from potential losses if the contractor fails to meet their obligations.

Learn more about How a Performance Bond Works in Construction.

How to Release a Performance Bond

The release of a performance bond signifies that the contractor has fulfilled their contractual obligations and that the project owner no longer requires the financial guarantee. Follow these steps:

1. Confirm Project Completion

Ensure all work under the contract has been completed, including addressing any defects or punch-list items. The project owner (Obligee) typically provides a formal sign-off to confirm completion.

2. Contact the Surety

Reach out to the surety company that issued the bond. Inform them that the project is complete, and you are requesting a bond release. The surety will provide a bond release form.

3. Complete and Submit the Bond Release Form

Fill out the form provided by the surety, including:

• Project details (contract name, location, completion date).

• Proof of completion, such as a Certificate of Substantial Completion.

• Any additional documentation required by the obligee or surety.

4. Obtain Obligee Approval

The project owner must approve the release of the performance bond. Without their consent, the bond cannot be released.

5. Pay Any Remaining Fees

There may be minor fees associated with the bond release process. Ensure all payments are made to finalize the release.

Visit How to Be Released from a Performance Bond for further insights.

When Can a Performance Bond Be Released?

A performance bond is typically released:

• After Practical Completion: When the project owner confirms that the work has been completed and meets the required standards.

• After Defects Are Addressed: If the contract includes a defects liability period, the bond may only be released after the contractor fixes all reported issues.

Learn about the timing of bond release in Can a Surety Bond Be Released Early?.

Why Is Releasing a Performance Bond Important?

Releasing a performance bond allows the contractor to recover their financial resources and demonstrates that the project owner is satisfied with their work. The process also closes out the contractor's obligations under the bond, providing clarity and closure for all parties.

FAQs About Performance Bonds

1. Can a Performance Bond Be Canceled?

No, a performance bond cannot be canceled by the principal or surety unilaterally. It can only be released with the obligee’s approval.

2. Do You Get Your Money Back?

Performance bond premiums are non-refundable. However, once the bond is released, the contractor no longer has financial obligations tied to it.

3. What Triggers a Performance Bond?

A performance bond is triggered when the contractor fails to meet the contract’s terms, such as delays, substandard work, or project abandonment.

Learn more at What Is a Payment Bond?.

4. How Much Does a Performance Bond Cost?

The cost typically ranges from 1% to 3% of the contract value, depending on the contractor’s financial stability and the project size. Read Performance Bond Costs for more information.

Related Resources

• How to File a Claim on a Performance Bond

• How to Make Up a Performance Bond for a Demolition Job

• Construction Bonds Overview

• How Long Coverage Under a Performance Bond

• Performance Bond Reflections in Bids

Final Thoughts

Releasing a performance bond is a straightforward process when all contractual obligations are met. By collaborating with the surety and the project owner, contractors can ensure a smooth bond release and focus on their next projects.

If you have any questions or need assistance with performance bonds, visit Swiftbonds or contact us today!