Performance Bond
A surety bond that guarantees a contractor will complete the project according to the contract terms: if they don't, the surety company steps in to cover the cost of finishing the work, usually by hiring a replacement contractor.
Why it matters
It's the owner's protection against a contractor who goes out of business, underperforms badly, or simply walks off the job. Without one, an owner whose contractor fails midway through has to absorb the cost and delay of finding someone new to finish, entirely on their own.
On a real project
A general contractor on a hospital project becomes insolvent halfway through construction. Because the project carried a performance bond, the surety company steps in, hires a replacement contractor, and covers the extra cost of finishing the work beyond what remained in the original contract.
Who this matters most to
A Contracts Administrator arranges performance bonds during contracting and understands the bonding capacity a contractor actually has available. An Owner's Representative treats a strong performance bond as real protection when recommending which contractor an owner should actually hire.
Where this goes wrong
An owner hires the lowest bidder on a project without checking whether that contractor can actually get bonded for the full contract amount. The contractor turns out to be overextended and can't secure the bond after all, and the project has to restart its contractor selection from scratch, a delay that careful bonding verification upfront would have avoided entirely.