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Performance Bonds

Mark  Maness's Profile

A service business (advertising) client of mine has been asked to obtain a performance bond. I am not familiar with this product and would appreciate an overview of the structure, costs etc. Also - is it common to have a performance bond on a service contract? I know its a given for many construction type projects but I've not seen it as a requirement for an advertising/marketing contract.

Answers

Anonymous
(Controller) |

As a custom manufacturer we often are requested to obtain a performance bond. It’s looked upon as an insurance policy for the customer.

If you fail to perform .. the bond provides the funds for your customer to go someplace else to get the work done without having to pay twice out of his pocket.

You may be asked to provide a 10% bond, a 50% bond or a 100% bond.
The premium that you pay to the surety to provide the bond should be a direct expense of the project.

Perhaps there is some question about your client's ability to perform (the service)as needed. I would think that the accounting treatment would be the same.

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