A typical performance bond would ensure that the Solar project was completed in accordance with the terms and conditions of the EPC contract and within the time frame specified. These bonds are frequently required by contract. The bond amount would range between 10 and 100% of the contract value, depending on the jurisdiction. It is normally 100% in the United States, 50% in Canada and Mexico, and 10-20% in South America, the EU, and other places.
The percentage guarantee is determined by the bond's language. Bonds with higher percentages are often “remedy” in nature. In an event of a default, the obligation of the surety is to remedy the problem. There must be a legitimate default, declared by the beneficiary, and presumes the beneficiary is not in default of its obligations to the contractor. The surety may provide funding to the contractor, replace the contractor with a completing entity, or (very rarely) write payment to the beneficiary and allow them to complete.
Lower percentage bonds may have the same features. Except they have a higher chance to be “demand” in nature and much more like letters of credit in wording. They do not require a formal default, nor is there much of a chance to refute the demand.
When the language of the bond and the language of the underlying contract disagree, the latter usually prevails. Questions about output guarantees, defective workmanship warranties, definitions of default and damages, and so on all play a role.
Most importantly, the cost of the bonds differs markedly because of the risk differential. Underwriting is based on several factors: Language of the contract / The financial status of the applicant / Previous experience of the applicant on similar type/size projects / Labor vs material risk. Subcontractor risk evaluation /Positive confirmation of project funding / Legal/political jurisdiction of the project site.