When is a performance bond required?

A performance bond is typically required when a contractor is selected for a job as a condition of the contract. It serves as a guarantee that the contractor will complete the project according to the agreed terms and conditions. This bond protects the project owner from the risk of contractor default, ensuring that funds are available to complete the project if the contractor fails to fulfill their obligations.

While bid bonds are often required during the bidding process to demonstrate that a contractor is serious about their bid, the performance bond comes into play once the contractor is awarded the contract. Therefore, linking the performance bond requirement directly to the contract selection process is the key aspect of understanding when it is needed.

The other scenarios listed do not directly correlate with the need for a performance bond, as the bond specifically addresses the performance guarantees of a contractor once they have been selected and engaged in the contract for a project.