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ARTICLE · 03 FEBRUARY 2022

Performance Bonds – What Do They Really Cover?

Miller Thomson
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It is common practice in the construction industry to use contract documents and performance bonds to allocate risk appropriately between owners and contractors.

CanadaReal Estate and Construction
Charles W. Bois
Charles W. Bois
Andrew Hefford
Andrew Hefford
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It is common practice in the construction industry to use contract documents and performance bonds to allocate risk appropriately between owners and contractors. Owners often require that contractors provide a performance bond from a recognized surety as a condition to being awarded the construction contract. A performance bond provides the owner with a mechanism to mitigate the costs and risk of the contractor defaulting under the construction contract. If a contractor defaults on its obligations under the construction contract, and there is a performance bond, that bond entitles the owner to call on the surety to complete the contract.

Subject to the express terms of the performance bond, a surety generally has four options under the bond to respond to the owners demand. The surety can:

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