What is the function of a performance bond in construction?

The function of a performance bond in construction is to guarantee project completion as per contract terms. When a contractor obtains a performance bond, it serves as a financial assurance to the project owner that the contractor will fulfill their obligations outlined in the contract. Should the contractor fail to complete the project or adhere to the specified terms and conditions, the bond provides a fund that can be used to compensate the project owner or to hire another contractor to complete the work. This mechanism helps mitigate the risk of non-performance and protects the interests of the project owner, ensuring that projects are completed on time and according to the agreed-upon specifications.