The term is also used to denote a collateral deposit of good faith money, intended to secure a futures contract, commonly known as margin.
Performance bonds are commonly used in the construction and development of real property, where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor).
In other instances, a performance bond may be requested to be issued in other large contracts besides civil construction projects.
In the United States, under the Miller Act of 1932, all construction contracts issued by the Federal Government with a value over $150,000 must be backed by performance and payment bonds.
[4] States have also enacted what are referred to as "Little Miller Act" statutes,[5] requiring performance and payment bonds on State-funded projects.
[citation needed] In the United Kingdom, performance bonds[6] are commonly required for construction projects.