FAQ On How To Prevent Or Resist The Calling Of A Performance Bond

Most if not all construction contracts impose a mandatory obligation on the contractor to furnish to its employer a performance bond to guarantee the performance of the contract.

A performance bond is a contract between the bank and the person entitled to receive the performance bond ("the beneficiary"). Performance bonds are usually in the form of a bank guarantee for a certain percentage of the contract sum. Although the performance bond is entirely separate from the construction contract, the performance bond contract is closely related to the underlying construction contract.

We have previously published an article titled Performance Bonds and Bank Guarantees – Interpretations and Demands which explores the various interpretations of performance bonds and the requirements of a valid demand. This article answers frequently asked questions on how to prevent/resist a call on a performance bond in the construction industry.