Funds control for a performance bond

Funds control for a performance bond refers to the process of monitoring and controlling the disbursement of funds related to a construction project or contract that is secured by a performance bond. A performance bond is a type of surety bond that provides financial protection to the project owner (obligee) in case the contractor (principal) fails to perform or fulfill their contractual obligations.

In the context of funds control, the objective is to ensure that the funds provided by the obligee are used appropriately and in accordance with the terms and conditions of the contract. This helps protect the obligee's interests by preventing misappropriation of funds or improper use by the contractor.

Here's how funds control typically works for a performance bond:

1. Establishment of a control account: A separate bank account, known as a control account or funds control account, is set up specifically for the project. This account is typically jointly controlled by the obligee, the contractor, and sometimes the surety company that issued the bond.

2. Funds disbursement process: When the obligee needs to make payments to the contractor for completed work or other eligible project expenses, the funds are deposited into the control account. The obligee may require the contractor to submit documentation, such as invoices, receipts, or progress reports, to support the disbursement request.

3. Verification and approval: The obligee, or a designated party such as a project manager or a third-party funds control agent, reviews the disbursement requests and associated documentation to verify that the expenses are legitimate and comply with the contract terms. If everything is in order, the disbursement is approved.

4. Disbursement from the control account: Once the disbursement is approved, the funds are released from the control account and transferred to the contractor's regular operating account. This transfer may require the signatures or authorization from multiple parties involved in the funds control process.

By implementing funds control for a performance bond, the obligee can exercise greater oversight and control over the project's financial aspects. It provides an additional layer of protection against financial risks and helps ensure that the project funds are used appropriately and in line with the contractual requirements.