What is a ‘Performance Bond’ (PB)?

What is a ‘Performance Bond’ (PB)?

A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.

For example, a contractor may issue a bond to a client for whom a building is being constructed. If the contractor fails to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss.