What happens if you don’t use a performance bond?
In short, your contract may be terminated and you could end up owing money to the other party. Let’s look at an example:
You want to subcontract a piece of work for a client. The contract details the specific deliverables that must occur, when they must happen, and how much you will charge for completing them. The contract also defines what happens should either side fail to meet any part of their responsibilities under the contract.
This is called a “penalty clause” or “liquidated damages clause” All contracts have one of these clauses. Depending on the nature of the agreement, it might specify payment in lieu of damages, reduced rates for a later stage of the project, or work at a reduced capacity.
What happens if you don’t have a performance bond? If you fail to meet any part of what is described in your contract, the other party may look for remedies under the contract. For example, they would do this by terminating your agreement and claiming damages. They will be looking for those damages as laid out in the agreed-upon penalty clause.
When my performance bond is called, what happens?
In general, a contractor may not ask for or receive payment from an owner without first posting a public performance bond. The bond protects owners from losses resulting from defective workmanship and materials by contractors. Thus, you should be paid only after your work is completed to the owner’s satisfaction.
However, it is also possible that negotiations between the contractor and owner could result in a settlement before the formal completion of the project. This settlement would terminate the original contract. But it would leave open a new question: What about money owed on account of non-completion?
If you have not “earned” all of your compensation, you may not be paid for work already completed and cannot recover the original contract price. However, if you have done enough work to “earn” at least some payment under the terms of the contract, an owner must pay you according to those terms – even though you ultimately do not receive all that was promised.
What happens if I don’t keep my performance bond?
If an act does not live up to their end of the contract, they may have to forfeit their deposit. While it is usually stated in the terms of a performance bond that the deposit will be returned should you not meet your obligations, this does not often happen. In some cases, if you have been paid a deposit and do not show up for work, this could be considered a breach of contract and can result in loss of wages or being blacklisted from future shows.
You lose a performance bond when you forfeit your show obligations or fail to meet them altogether because you missed your required appearance at an event without providing sufficient notice to change plans. This would likely be considered a breach of contract and would mean that no refund of the original performance bond amount will be provided by either party under this agreement. However, you may still be entitled to attorney’s fees and court costs.
If a performance bond isn’t used, does it expire?
This is why some businesses may be still using performance bonds that they purchased in the late 1990s or early 2000s. If the contract was written so the business can use its letter of credit to purchase another performance bond when they renew their license every three years, they only have to pay for premiums when they re-up. Otherwise, if they don’t renew or just let their policy lapse, then it expires after 3 years and one month since the issuance of the original policy.
In short, once a performance bond has been issued and isn’t used within three years from the issuance date, it expires automatically. To continue coverage past this point, you must either renew the policy or implement a new one.
If you aren’t sure if your performance bond has expired, contact us for more information regarding your specific situation. We can also help locate companies to replace your current bond. If you are searching for a licensed contractor for any reason, make sure they have their required licenses and performance bonds before starting work on your property.
This will ensure that everything runs smoothly and both parties are protected throughout the process. Your state may require special requirements, so be sure to check with state law prior to hiring anyone for contracting services.
What is the duration of a performance bond?
During the performance of a contract, the principal may be required to provide a bond as security for specific obligations. A performance bond is a common requirement in construction contracts where contractors provide a guarantee that their work will be completed, done properly, and paid for by providing a financial guarantee from an insurance company.
The term of the bond must match the length of time needed to complete construction, but it can also include several phases of payments so long as payment periods are clearly defined.