Many types of bonds are used in Construction projects such as
Tender Bonds (sometimes called Bid Bonds), Advance Payment Bonds
and Performance Bonds. In this Article, we look at Performance
Bonds.
Many standard form construction contracts require the Contractor
to submit a Performance Bond to the Employer (e.g. Oman's
Standard Contract for Building and Civil Engineering Works or the
FIDIC suite of contracts).
What is a Performance Bond?
This is a type of demand guarantee issued by a Bank to the
Employer at a Contractor's request. The guarantee secures the
performance of the Contractor's obligations under the
construction contract.
The bond amount will usually be a percentage of the price of the
value of the contract and the terms of the bond will be such that
it will be payable on demand. The Contractor's ability to
challenge the demand will often be limited.
