Performance Bond (Construction)

If a contractor defaults, the project owner (obligee) must provide written notice to both the contractor and the surety company, attempt resolution, and then formally declare the contractor in default. The surety investigates the claim and has several options: finance the original contractor to complete the work, hire a replacement contractor, take over the project directly, or deny the claim if valid defenses exist. The surety pays up to the bond's penal sum (typically 100% of the contract amount) to cover completion costs, then seeks reimbursement from the contractor through the indemnity agreement.

In Ohio, a Performance Bond is required for all state public works contracts under Ohio Revised Code §153.54, and for Ohio Department of Transportation (ODOT) highway and infrastructure contracts under ORC §5525.16. The bond is mandatory at 100% of the contract amount before entering into the contract. Private construction project owners may also require performance bonds as a condition of the contract, especially on large commercial projects. Local governments may have their own bonding thresholds and requirements.

To obtain an Ohio Performance Bond, contractors must undergo full underwriting review including: personal and business credit checks, comprehensive financial statement review (showing liquidity and financial strength), work-in-progress schedule, bonding history, resume of experience and qualifications, and bank statements. The surety must be authorized by the Ohio Superintendent of Insurance and approved by the ODOT director or public authority for financial sufficiency. Contractors need to demonstrate adequate capacity to handle the project size and provide a Certificate of Insurance for general liability and workers' compensation coverage.