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A performance bond is an insurance policy in which the insurer promises to pay for damages or for the completion of construction works if the contractor does not do so.
These bonds are often a requirement for government construction projects as they are answerable to the public should projects be delayed or never come to fruition.
The amount to be repaid depends on the policy limits.
However, don’t get complacent just because there is an insurance policy to protect you.
While insurance helps to buffer the economic impact of construction problems, the negative impact on reputation and credibility can be difficult to quantify.
A performance bond should not be confused with a completion bond.