Performance Guarantee or Performance Bond is an agreement between a Client and a Contractor. The bank offers a guarantee to the client on behalf of a contractor that work will be done as per the agreement.
A Performance Guarantee is issued by a financial institution or bank to a contractor, to promise completion and due performance of the works of the service, as described in the contract documents. Here, the contractor provides a performance guarantee in favor of the project owner to assure their work on the project. Also, this protects the project owner against any claim; in case of non-execution by the contractor, according to their concurred terms. To elaborate further, this is a document that lawfully assures that the contractor, will complete the underlying contract. It gives certainty and enhances business confidence between the contractor and owner.