Performance bond and payment bond

Performance bond:

It guarantees the obligee that the principal will perform his contract as per terms and condition connecting to time and money. The owner of the contract may sue the principal and the surety, in failure of their contract. If the principal fails, then the surety has to finish the contract. The surety has its own choice of completing the contract. He may complete with his own contractor or with another contractor or paying the money to the obligee to complete his contract. The main aspect of his contract is to protect the interest of the obligee.

Payment bond:

This bond is used by both the principal and the surety. In this bond the obligee gives guarantee to the principal that he will make his payment as per the instruction of the contract bond. If he fails the principal can either break the contract or he may sue in the court of law. The other aspect is that, this can be issued to the subcontractors by the principal for supply of material as furnished in the contract.