penal bond
- An assurance agreement which requires a party to pay a specified sum if they do not fulfill certain duties, often mandatory in government contract situations
- The construction company was required to obtain a penal bond before they could start work on the government project.
- If a party does not perform according to the agreed terms, the penal bond can be used to cover losses.
- To secure a government contract, businesses often must provide a penal bond as a safeguard against nonperformance.
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