Performance Bond

Performance Bond is a form of Bank Guarantee, typically issued by a financial institution, to acts as a guarantee on your contractual obligation. Also known as a contract bond, these are usually used on all service contracts, from catering to construction projects and for both private and public sector use. With a performance bond, the applicant can more readily secure tenders and opportunities that require a higher degree of oversight. In the UAE and all over the world, performance bonds are commonly used by parties involved in the construction industry. Contractors who are hired to complete a specific project are asked to put forth a performance bond so that they deliver services as per the pre-determined requirements.

At Credico Capital, we specialize in helping clients based within the construction industry to equip themselves with a performance bond. Backed by a team of specialists, we can source highly competitive quotations from multiple banks and ensure that our clients receive the best possible deals. For more details about Performance Bonds and other cash flow solutions, reach out to your nearest Credico Capital Trade Finance Desk today.

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Performance Bond

How Does a Performance Bond Work?

When a government body or privately-owned company hires a contractor to complete a project, both parties agree to specific terms. In some cases, a contractor may fail to provide the agreed-upon work in the specified timeframe. In other cases, a contractor may not complete the work at all. A performance bond protects the employer in both situations. Should a contractor fail to meet their deadlines, the bond provider will pay for a new contractor to be hired. A performance bond is usually obtained from a bank.

In the global market and the UAE, however, an increasing number of independent financial institutions are offering performance bonds. At Credico Capital, we have the experience of helping clients to acquire a performance bond from both banks as well as private financial institutions.

How to Obtain a Performance Bond Guarantee

Whether it be a bank or an alternate financial institution, clients are required to submit a lot of documents as part of their performance bond application. The bond provider will seek information such as the contractor's previous projects, his/her current clients, and sometimes even a detailed report of their financial history. Such a comprehensive application process exists to ensure that the contractor has the necessary funds to complete the project on-time. The contractor is also expected to declare any outstanding lines of credit or unpaid debts along with their application.

Contractors seeking a performance bond must be prepared to make a financial sacrifice. Typically, the cost of a performance bond is equal to 1% of the value of the contract. Based on your bank, this cost may be accompanied by a series of non-refundable application fees. For this reason, you must seek the service of trade finance experts such as Credico Capital. Not only will our agents help you gather, submit all the necessary documentation, but we'll also negotiate on your behalf with the chosen surety company to get a reasonable coverage rate.

Benefits of Performance Bonds

The obvious benefit of a performance bond is that it protects the employer against the shortcomings of the contractor. As such, any contractor who can provide a performance bond can instill greater trust in their clients. Generally, this results in more efficient work. Additional advantages of a performance bond include:

  • The project owner does not have to worry about paying for a replacement contractor should one be necessary.
  • A performance bond enables contractors to work on government projects. These projects generally pay quite well and increase the profile of the contractor.
  • Although most commonly seen in construction, performance bonds can be utilized across several industries. Security, catering, and retail agencies all over the world and in the UAE often pursue performance bonds.
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