1. A bond given by a surety to ensure the timely performance of a contract. • In major international agreements, performance bonds are typically issued by banks, but sometimes also by insurance companies. The face amount of the bond is typically 2% of the value of performance, but occasionally as much as 5%. [Cases: Principal and Surety 59–87; Public Contracts 45. C.J.S. Principal and Surety §§ 8, 70–94, 111, 120; Public Administrative Law and Procedure§ 45.]
2. A third party’s agreement to guarantee the completion of a construction contract upon the default of the general contractor.
— Also termed completion bond; surety bond; contract bond. Cf. common-law bond under BOND (2).
nonoperative performance bond. A performance bond that is not currently in effect but is activated upon the issuance of the buyer’s letter of credit or other approved financing.
operative performance bond. A performance bond that has been activated by the issuance of the buyer’s letter of credit or other approved financing. [Cases: Public Contracts 45. C.J.S. Public Administrative Law and Procedure § 45.]
revolving performance bond. A performance bond that is in continuous effect for the duration of the contract, usu. plus an additional number of days (often 45).
up-front performance bond. A performance bond given before the issuance of the buyer’s letter of credit or other financing.
