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A performance bond is a type of surety bond that guarantees a contractor will complete a project according to the terms of the contract. This bond is essential in protecting the project owner from financial loss in the event that the contractor fails to meet their obligations, such as completing the work on time or adhering to the project's specifications.

When a contractor obtains a performance bond, the surety (the company issuing the bond) agrees to step in and ensure that the contractual responsibilities are fulfilled. If the contractor defaults, the surety must either fulfill the contractual obligations themselves or compensate the project owner for any losses incurred due to the contractor's failure to perform.

This differs from other types of bonds, such as bid bonds, which are used to guarantee that a contractor will honor their bid if chosen for a project but do not provide assurance regarding project completion. Common Law bonds are less commonly referenced in modern contracting practices and do not specifically guarantee fulfillment like performance bonds do. Insurance bonds typically provide financial protection against claims but are not specifically linked to the contractual obligations of a contractor.