What does a contractor typically provide to secure a performance bond?

A contractor typically provides collateral or other financial guarantees to secure a performance bond because performance bonds are designed to protect the project owner against the risk of the contractor failing to complete the project as specified in the contract. By putting up collateral—such as cash, securities, or other forms of financial guarantees—the contractor demonstrates their financial stability and commitment to fulfill the contractual obligations. This is crucial because it assures the project owner that funds will be available to complete the project, should the contractor default.

While a detailed project plan might be important for outlining how the work will be completed, it does not serve the same protective function in terms of guaranteeing performance. A list of references could help establish the contractor's credibility but again does not provide financial security. An insurance policy may offer different types of protection, such as liability coverage, but it is not a substitute for the specific assurance that a performance bond provides regarding project completion. The requirement for a performance bond fundamentally lies in securing financial backing that can be drawn upon if necessary, hence the emphasis on collateral or guarantees.