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Performance bonds are provided to protect the owner. They ensure a contractor will perform work required in connection with a contract award or winning bid. If a contractor defaults or becomes insolvent before finishing the project, the bond could be used to retain another contractor to perform the work and/or compensate the owner for any losses.
A payment bond and a performance bond work hand in hand. A payment bond guarantees that the contractor will pay all entities, such as subcontractors, suppliers, and laborers, for that particular contract.