The Procurement Glossary » Performance Bond
Performance Bond
Sourcing & RFx
Definition
A guarantee that a supplier will fulfil its contractual obligations, giving the buyer financial recourse if it fails.
Explanation
A performance bond (usually a percentage of contract value, issued by a bank or insurer) protects the buyer against non-performance on significant contracts. It is called upon if the supplier defaults, funding completion by another party.
Example
The construction contract requires a 10% performance bond the buyer can draw on if the contractor abandons the site.
Related terms
- Bid Bond — A guarantee submitted with a bid that the bidder will honour its offer and enter the contract if selected.
- Contract — A legally binding agreement between buyer and supplier setting out what will be supplied, at what price and on what terms.
- Liquidated Damages — A contractually fixed sum payable by a supplier for a specified breach, agreed in advance as a genuine estimate of the buyer's loss.
- Supply Risk — The risk that supply of a good or service is disrupted, constrained or made more costly.
Frequently Asked Questions
What is Performance Bond?
A guarantee that a supplier will fulfil its contractual obligations, giving the buyer financial recourse if it fails. A performance bond (usually a percentage of contract value, issued by a bank or insurer) protects the buyer against non-performance on significant contracts. It is called upon if the supplier defaults, funding completion by another party.
Can you give an example of Performance Bond?
The construction contract requires a 10% performance bond the buyer can draw on if the contractor abandons the site.
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