Benefits Of Having A Performance Bond

Benefits Of Having A Performance Bond

Performance Bond

Performance bonds’ popularity is increasing daily, especially for companies and contract-based firms. The governments have made it compulsory for contractors and other industries to obtain verified performance bonds, and Ontario was the first place for such implementation. This requirement suggests and highlights the importance of having these bonds. They are indispensable for the obligee, the contractor, and the surety company.

It has become compulsory for specific public-funded industries that serve the government to offer a performance bond. Such a requirement has been hiked in the recent past, which had a lasting impact on the privately operating sectors where they received a mountain of letters for bid bond specifications.

This article will guide you through how an obligee and principal can benefit from these bonds.

Benefits To The Obligee

The primary party that benefits through these policies is the party that avails the service from the firm. The project owner, also known as the obligee, requires a performance bond for the following benefits:

Justice: The first and foremost benefit every obligee gets is the means for attaining justice and monetary compensation if the service provider should not meet the mentioned specifications. A bond serves as a medium of assurance, where the obligee can appeal against the contractor to the surety party. Such appeal may not be possible without it. It prevents the contractor from running away from his responsibilities and ignoring the compensation.

Management of risk: These policies play a crucial role in reducing the risk of partially completed work or unsatisfactory performance. Companies that do not follow the specifications will have to spend substantial amounts for this compensation, thus ensuring quality products. The losses are effectively managed by transferring them to the performer.

Benefits To The Principal

A performance bond help not only the customers and clients but also the companies in the following ways:

Motivating factor: Since the principal must pay in case of improper quality and delayed work submission, these policies drive them to complete the project on time. They ensure that work is well under the budget and meets the standards expected by the obligee.

Opportunity providers: When a contractor company regularly establishes performance bonds with their clients, it would serve as an opportunity for building a reputation for quality work. Clients will periodically take up work from the principal contract-based workers. They are potential attractions for customers seeking quality work for their projects.

Other Benefits

Offering these bonds can serve as potential attractions for bidding on more contracts in the long run. It establishes a win-win situation for both parties, where one is assured good work, and the other is motivated to impart quality service. Apart from the above benefits, a performance bond also serves the following benefits:

  • Ensures peace of mind for the relevant project
  • Serves as alternatives to bonds provided by banks and those availed through letters of credit
  • Increases liquidity of contract-based businesses
  • Enhances reputation through the regular offering of bonds
  • An increased response rate of bidders and invitations to tenders
  • Bank borrowing is no longer the only option.
  • Acts as a symbol for an establishment with a reputation comparable to government standards and infrastructural housing projects


A performance bond serves as an element of trust between the parties involved. The indispensable role of providing assurance characterizes them. Especially in projects where investment and stakes are high, and there is a substantial risk of poor quality, these policies play an essential role in upholding reputation. It is an effective risk manager and binding agency for the concerned parties. The above benefits clearly state the need for such bonds by industries that serve the government and the public.

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