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Performance Bond Disputes

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What is a Performance Bond?

A performance bond is a type of surety bond issued by a bank or by an insurance company in order to guarantee the completion of a project, usually by a construction contractor.  Performance bonds may be secured by the client in order to ensure that they are guaranteed compensation in the event that they experience any financial losses due to incompletion of the project.

For example, it may happen that the contractor fails to complete the building project because they went bankrupt mid-way through the project.  In such cases, the client would be protected by the performance bond being issued in their favor. 

Performance bonds are usually associated with larger projects that require several contractors to bid for participation in the project.  Such bonds may be called by other names, such as “contract performance bond”, or “standby letter of credit”. 

Is This the Same Thing as a Payment Bond?

Performance bonds are sometimes included as part of a larger “Performance and Payment Bond”.  Here, the “payment bond” guarantees that the contractor will shoulder the payment costs for labor and material according to the contract specs.  However, performance bonds are not exactly the same thing, as a performance bond focuses mostly on the actual completion of the project (i.e., the “performance” of the contractual duties)

Performance bonds are also related to other types of bonds, like fidelity bonds.  However, performance bonds are usually not considered insurance, as they typically cover 100% of the contract price.

What are Some Different Kinds of Performance Bond Disputes?

Performance bond disputes can involve a number of different legal issues.  Most of these have to do with a breach of the construction contracts, and can involve issues like:

  • Non-performance of duties
  • Unauthorized assignment of contract duties
  • Fraud with regards to performance bond agreement, or with the project contract itself
  • Illegal activity associated with the project (such as hiring undocumented workers)

These types of factors can affect the validity of a particular performance bond.  In addition, if the client is found to be in some sort of violation, they may forfeit their rights to be reimbursed under a performance bond agreement.  Many of these types of violations require the assistance of a lawyer, especially if the parties need to go to court due to a lawsuit.

Do I Need to Hire a Lawyer for Help Resolving a Performance Bond Dispute?

Performance bonds are an important aspect of many types of projects.  You may wish to hire a lawyer if you need help reviewing or negotiating a performance bond.  Your lawyer can help you understand the contract laws in your area, and can help you obtain the most favorable type of arrangement for your goals.  Also, you can retain an attorney in the event that you need to file a private lawsuit in connection with a performance bond. 

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 12-05-2012 04:31 PM PST

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