What is a Performance Guarantee Agreement?
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A performance guarantee agreement is another name for a surety known as a performance bond. These are usually given to a construction company when they need to be bonded for a job requiring a surety bond. In addition, this contractual agreement is usually granted in conjunction with payment bond. They are normally required for any governmental contract as dictated by the Miller Act. Most states have also passed statutes that require a performance and payment bond in their own states and these laws are known as little miller acts.
A performance guarantee agreement guarantees that the Obligor (the contractor) will perform according to the terms of the contract. If not, the surety will step in and provide another contractor to finish the job. If they cannot find another contractor to finish the job, then they will pay damages to the Obligee (the owner of the property/project). A payment bond, which is typically issued at the same time as a performance guarantee agreement, assures that the Obligor will pay all subcontractors and vendors (like material providers) for the job.