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X13

Performance bond

Reviewed by LazyQS Editorial·Last reviewed: 2026-02-19

Plain English Explanation

X13 requires the Contractor to provide a performance bond — a bond from a surety (typically an insurer or bank) that will pay out to the Client if the Contractor fails to perform their obligations. The bond value is stated in the Contract Data (typically 10% of the contract sum) and is a capped financial security.

A performance bond is different from a parent company guarantee (X4). A bond is an insurance product issued by a third-party surety; a PCG is a direct obligation of the parent company. Bonds are capped at the stated amount; PCGs are generally capped at the contract sum. On a default, the Client calls the bond — a process that is separate from the underlying contract dispute.

Performance bonds are commonly required on public sector contracts, high-value works, and where the Client has concerns about the Contractor's covenant strength.

Key Takeaway

Distinguish between a conditional bond (requires proof of default) and an on-demand bond (callable without proof) — the latter is significantly more risky and should be reflected in your price and risk position.

What This Means for Subcontractors

Performance bonds may be required from subcontractors, especially on higher-value packages. The cost of a bond (typically 0.5–1.5% of the bonded amount annually) should be priced into your bid. Bond conditions vary — some require proof of default before calling, others can be called 'on demand'. Check the form of bond carefully and factor the cost into your price.

Common Risks & Disputes

  • 1Bond cost not being priced into the tender, eroding margin
  • 2On-demand bonds creating a risk that the Client can call the bond without needing to prove default
  • 3Bond conditions and calling procedures not being understood before contract execution
  • 4Bond being required but the subcontractor being unable to obtain one from a surety
  • 5Dispute about whether the bond has been correctly called and whether the surety must pay

Sources

  1. NEC4 ECC Secondary Option X13— NEC4 ECC
  2. RICS Guidance Note: Performance Bonds and Security Under NEC Contracts— RICS
  3. Fenwick Elliott: Performance Bonds — Conditional vs On-Demand Bonds in Construction— Fenwick Elliott
  4. Society of Construction Law: Bonds and Guarantees in Construction Contracts— SCL

Related Clauses

X4

Parent company guarantee

Parent company guarantee — the alternative form of security to a performance bond

X11

Termination by the Client on notice

Termination for convenience — bond calling and termination often occur together

Continue Learning

Category Overview

Back to X Clauses (Secondary Options)

Adjacent Clauses

X12 Multi-party collaboration

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