performance bond

A performance bond is a promise given or obligation undertaken by a surety to ensure punctual performance of a contract. In high value transactions, such bonds may be issued by banks and are also issued by insurance companies. The value of the bond is usually a small percentage of the value of performance, typically 2 – 5%.

Usage: The principal refused to enter into the software development agreement without a performance bond being provided by the developer's bank.

Related Words: bond; surety; debenture; insurer; undertaking; guarantor.