The Performance Bond is a guarantee which secures the Employer from the risk of possible breaches by the Contractor during the execution of the works. It can be risky for the Contractor for several reasons and above all because it is a guarantee which remains in force for the entire life of the construction project.

In international construction projects, it is rather standard that the Contractor starts the mobilisation/procurement just after an advance payment has been paid by the Employer. But how does it work and how can you negotiate it at your best?

In construction contracts, disputes are extremely  frequent  especially in international projects. The claiming is almost inevitable and controversies concerning extra works,  extension  of time, liquidated damages for (alleged or actual) delay of the Contractor, or for the calling of the bonds issued by the Contractor for (alleged or actual) default from the Contractor itself are almost the ordinary course of a project.

The Bid Bond guarantees the Employer that the bidder will sign the contract, if awarded, or will comply with other specified obligations (such as to issue other bonds as provided in the bidding documentation). They are rather frequent, especially in mid/big size projects.

The Warranty Bond is a guarantee which secures the Employer in the case the Contractor will not remedy the defects, if any, which may occur during the warranty period of the works. 

It is often issued by an insurance company or (especially in mid size international projects) by a bank and it provides the payment of a sum of money if the Contractor will not perform any remedial work as provided in the contract, a sum which will be used by the Employer to have the remedial works carried out by a third party.

Bonds in construction contracts are often a pain point for Contractors. Especially in international construction projects they are frequent and are used to protect in a way or another the Employer from various breaches and non-performance of the Contractor.

Construction bonds are however rather risky for the Contractor especially if they are issued in the form of an on-demand bond.