Performance & Payment Bond
A performance bond provides that the work of the contractor will be fully and satisfactorily completed in accordance with the Contract Document, which, by definition, includes the Agreement between contractor and owner and all modifications issued subsequent thereto, the General Conditions, Drawings and Specifications. The Bond incorporates, by reference, all of these contract documents, with which the contractor must conform.
A payment bond is the companion to the performance bond. Unlike the performance bond, where right of recovery accrues only to the owner/obligee, the right of recovery under a payment bond usually extends to all unpaid claimants, who are legally entitled to bring separate actions directly against the contractor and surety. As the name implies, the payment bond guarantees that the unpaid claimants will be paid. State statutes usually govern in defining eligible claimants, except on federal work where the Miller Act controls.