What is the function of a performance bond?

A performance bond primarily serves to ensure that a contractor completes a project according to the terms and conditions specified in a contract. By providing this bond, the contractor offers a financial guarantee to the project owner (typically a municipality or governmental entity) that the project will be completed in accordance with the agreed specifications, timelines, and quality standards.

If the contractor fails to meet these obligations, the bond can be called upon by the project owner to recover financial losses incurred due to the default. This protection is particularly important in municipal finance, where public funds are often at stake, and timely project completion is critical for infrastructure and development initiatives.

Other options do not align with the primary purpose of a performance bond. While a performance bond does provide assurances related to project completion, it does not directly guarantee payment for services rendered, restrict access to funds, or outline project specifications. Instead, it functions specifically to mitigate the risk of non-completion, thereby fostering trust between project owners and contractors.