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.

Businesses can make numerous types of performance guarantees. When companies subcontract some of their businesses to other companies, they want promises, specifically of performance. If a contractor fails to complete the project within time stated, the owner will be assured of compensation for any monetary losses up to the amount of the performance bond.