Performance Bond

DEFINITION of 'Performance Bond'

A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.

BREAKING DOWN 'Performance Bond'

For example, a contractor may issue a bond to a client for whom a building is being constructed. If the contractor fails to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss.

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