Performance Bond in Kenya- Mwananchi Credit

performance bonds

Performance bond is also referred to as a contract bond.  It is issued to a party like a guarantee or security in case the other party fails to meet specified obligations in a contract.  It is given by a bank or an insurance company to ensure a contractor finishes a designated project. 

A good example of performance bond is what a contractor issues in favor of the client who hires them to build a house. The bond compensates the client in case the contractor doesn’t complete the project mostly due to bankruptcy or other specifications stated in the contract.

Performance bond

Who uses bonds performance? 

Just like performance bonds definition says, it is an assurance given by a project manager or constructor to guarantee their client that they will not count losses if anything such as insolvency happens to the contractor. Bonds performance 2021 may also be requested in other types of large projects apart from construction and civil engineering projects. For example, in commodity trades, the seller may be asked to provide a performance bond to reassure that buyer that if the commodities are not delivered, the client will be compensated.

How do performance bonds work?

Performance bonds are straightforward and are quite different from retention sum. The latter is about the client keeping some of the progress payments like a security as they wait to see the contractor’s performance; it is not the best idea because it affects contractor’s cash flow. Performance bonds for contract service are the ideal alternative and are procured from a microfinance or an insurance company. The third party providing the bond performance must be financially stable to offer solid protection to client.

Types of payment and performance bonds

Performance bonds are available in two forms:


Conditional performance bonds are payable when the prescribed event occurs. This payment is    made when the contractor defaults such as failure or delay to complete work or fail to rectify mistakes after finishing the project.

On Demand

This bond is paid based on performance bond, which is only payable when the client requests. The client doesn’t have to show or prove that obligations were breached.

Reasons to get performance bonds

It is beneficial to get performance bonds if you are a contractor or working on a big project where the client is paying a large amount of money. These contracts are legally binding and involve a client, contractor and an insurance company or a bank. The performance bonds cost is not in vain as they ensure all party members comply with the terms as stated in the contract. Here are more reasons to look up for performance bond near me.

Compulsory in any government contracts

In all government-issued contracts, performance bonds insurance must be procured. This protects the client or oblige against all losses in terms of money or time. In private agreements, it may not be a requirement but it is important to protect all three parties.

Guarantee compliance

Once a bond is issued, the time frame of a project becomes binding as agreed. It guarantees the obligee that the contractor abides by schedule since in construction projects, duration taken to complete the work is essential. Most contractors will try their best to finish the project within the shortest time possible. Having these bonds can be an incentive to finish work and abide by contract.


Performance bonds are sustainable compared to insurance policies. Insurance coverage functions solely in case something potentially goes wrong and the client is compensated. But, performance bonds are procured to enable all parties comply with the contract. The rates of bonds and insurance policies are also different and help you choose the one that suits your business at a particular time.

Enhances trust between clients and contractors

When a client asks a contractor to provide a performance bond, both parties know that cannot afford to make any mistakes. The project establishes certainty from both the client and contractor and everything flows smoothly. The contractor is 100% sure they will get paid and client is assured quality service. The bond is the guarantor if the third party fails to compensate them.


Bonds are affordable and even for large projects the rates from 1% up to 5%, but for very huge projects, the rate may be below 1%. It is viable and cheap way  to assure the client time frame and excellent quality  of the project. This is extremely low compared to insurance rates, which can high up to 40%.

Easily accessible

If you are wondering how much do bond performance cost and if it’s worth it. They are easy to access and you do not have to go through long endless paperwork because they are available online at Mwananchi Credit. It takes between 24 and 48 hours for small projects and if the project is large more information is needed and may take longer to get the bonds.

Performance bond creates a strong foundation for every project. It prevents most construction jobs from collapsing. This solid safety net guarantees the client that they receive services as laid out in the contract. A contractor will abide to everything because they do not want to lose their money. This little cost yields more returns for both the contractor and their client. Apply for a performance bond and have an easy time handling your contracts!

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