Legal Definitions - nonoperative performance bond

A nonoperative performance bond is a type of performance bond that is not currently in effect but is activated upon the issuance of the buyer's letter of credit or other approved financing. This type of bond is commonly used in major international agreements and construction contracts to ensure the timely completion of a project.

• Performance Bond: A bond given by a surety to ensure the timely performance of a contract. In major international agreements, performance bonds are typically issued by banks, but sometimes also by insurance companies. The face amount of the bond is typically 2% of the value of performance, but occasionally as much as 5%.
• Completion Bond: A third party's agreement to guarantee the completion of a construction contract upon the default of the general contractor.

These examples illustrate the definition of a performance bond. In the first example, a performance bond is given by a surety to ensure the timely performance of a contract. In the second example, a completion bond is used to guarantee the completion of a construction contract in case the general contractor defaults. Both examples show how performance bonds are used to ensure the completion of a project and protect the parties involved.