How do Performance Bonds Work

How Do Performance Bonds Work?

Nationwide Sureties are the UK’s leading experts in performance guarantees, helping clients understand exactly how performance bonds work and sourcing the best options available for your project. We secure competitive quotes from top providers to ensure you receive the best terms and protections.

• Competitive Premiums
• Access to the Full Surety Market
• Quick and Simple Application Process
• Expert Advice on How Performance Bonds Work
• ABI, On-Demand, Adjunction, or Hybrid Wordings Considered

What is a Performance Bond?

If you’re wondering how performance bonds work, a performance bond is a financial guarantee—usually 10% of the contract value—that protects the project owner (employer) if the contractor fails to meet their obligations. For example, on a £5 million project, a £500,000 bond ensures that if the contractor defaults, the employer can recover costs or hire another firm to complete the job.

How Do Performance Bonds Work in Practice?

Here’s exactly how performance bonds work: They create a tripartite agreement between the contractor (the principal), the project owner (the beneficiary), and the surety company (the guarantor). If the contractor fails—due to insolvency, default, or other reasons—the employer can make a claim on the bond. The surety investigates, and if valid, pays out up to the bond amount. This protects the project owner while allowing them to continue the work without financial loss. Nationwide Sureties ensures your bond is properly structured and ready to work when you need it.

What We Require to Arrange Your Performance Bond:

To secure your bond and fully understand how performance bonds work for your project, please provide:

• Details of the contract, including bond amount and term
• A completed application form
• A copy of the bond wording (if unspecified, we can suggest standard wordings)
• Your latest published accounts (including group accounts if applicable)
• Your most recent management accounts (up to the latest quarter)

Once submitted, our underwriters will review your how performance bonds work application, assess your financial strength, and provide competitive terms. Upon acceptance and completion of paperwork, your bond will be issued—ready to protect your project and satisfy contractual obligations.