A performance bond is a type of surety bond that guarantees a contractor will complete a project according to the terms of a contract. If the contractor fails to fulfill their obligations, the bond provides financial compensation to the project owner, ensuring that the work can be completed by another party. This bond is commonly used in construction and large-scale projects. These bonds protect the interests of the project owner and help maintain trust in the contracting process. They are typically issued by a surety company, which assesses the contractor's financial stability and ability to complete the project before issuing the bond.