What Are Performance Bonds and How Do They Work?

Those of you who are interested in intelligent investment options; you might be excited about performance bonds that provide you with lucrative opportunities to garner great returns. In the sophisticated financial environment of the UAE region, Credico Capital has ample expertise in consulting elite clients in matters of performance bond. You usually get a performance bond from a bank. An insurance company can also be an issuing authority.

What Is A Performance Bond?

A performance bond is fundamentally a form of financial guarantee. Under the agreement, the issuing authority makes it legally mandatory to deliver the required services or value to the party to which the instrument has been issued. You usually see the various dynamics related to the performance bond in the rapidly developing real estate market in Dubai and its outskirts. It is also a common financial instrument involving various contractors in the field of road construction.

The Three Parties Involved

• Principal – The major or primary entity bearing the full responsibility of completing the assigned project or part of the project as per the contract deal.
• Obliges – The obliged party will be the one who will receive the services from the Principal. It can be a municipality or a local administration.
• Surety – Surety is the specific financial body that bridges the transaction-related bridge between the Principal and the Oblige in a regulatory framework, issuing the detailed performance bond.

Gather All the Information Required

When signing a deal and proceeding with it, the Surety needs to ensure particular formalities and business-related requirements with the contractor in relation to the performance bond. The Surety must assess the financial statement of the contractor that details all the data pertaining to two years of operations. Moreover, the Surety must also take the initiative to link the contract with the bond. There should be a formal application in direct relation to the bond. The information regarding various collateral properties of the contractor should be accessible.

​

The Need for The Performance Bond

When you are planning to start and complete a real estate or construction project, the law in the UAE requires you and the contractor to get legally bridged by the performance bond. The bond is very important in order to make the major stakeholders accountable during the start, progress and completion of a project.

The Specific Benefits

There are some prominent benefits of the bond that you can’t deny. There is complete assurance of the completion of the specific project. The Oblige doesn’t require spending additional funds for getting the project completed.

If you want to know more about performance bonds, Get in touch with a reliable financial consultant.