Kidd Insurances brings new capacity for Performance Bonds to the Irish Market

Performance Bonds

1.What is a Performance Bond?

At its simplest, a performance bond is issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.
For example, a builder (the contractor) may require a performance bond to be issued in favour of a client (the beneficiary). The builder could be constructing new houses for a developer or road works for a local council.

If the contractor fails to construct the building according to the specifications laid out by the contract - in many cases due to the bankruptcy of the contractor - the client is guaranteed compensation for any monetary loss up to the amount of the performance bond. Typical scenarios involve two distinct elements:

  • When a client puts a job out to tender, he requires a builder looking to win the contract, to supply a bid bond i.e. confirmation in writing that he can secure a bond for a specific amount.
  • When the job is actually awarded to the winning bid, a payment and performance bond will then be required, as a security to underpin the completion of the job .If the contractor cannot complete the project, the insurance company issuing the bond steps in.

Debunking the terminology:

  • Performance bonds can also be known as contract bonds, surety bonds or contact guarantees.
  • The Contactor, typically a builder, is the policyholder. He can also be known as the principal.
  • The Client is the beneficiary of the bond. He can also be known as the oblige e.g. the developer of a housing estate or a county council.
  • The Surety is the issuer of the bond- typically an insurance company.

2.The Problem?

Bonds can be difficult to understand! Many contractors’ first introduction to bonds is where they are tendering for a piece of business. Left to sort out until the last minute, it’s usually panic stations!

However with significant growth in economic and construction activity countrywide, the need for Performance Bonds is increasing rapidly.

3. Who needs a bond?

Examples of suitable contracts requiring bonds are:

  • Housing Developments – New Build
  • Engineering Works
  • Government Projects e.g. Water Board Works
  • Roads and Infrastructure/ Civil Works
  • Commercial Building Contracts
  • Private Development
  • Waste/ Recycling Operators

4. Questions or Clarifications?

Karl Styles Kidd Insurances

Karl Styles
Commercial Executive

Ciaran O'Connor Kidd Insurances

Ciaran O'Connor
Commercial Schemes Manager

You can contact Karl Styles or Ciaran O'Connor with any queries on 01 2079400 or alternatively you can email us at: karlstyles@kiddinsurances.ie or ciaran@kiddinsurances.ie