A more thorough explanation:

A contract bond, also known as a performance bond, is a type of surety bond that ensures the timely completion of a contract. It is typically issued by a bank or insurance company and its face amount is usually 2% of the value of performance, but can be as much as 5%.

For example, if a construction company is hired to build a new office building, the owner of the building may require the construction company to obtain a performance bond. This bond would guarantee that the construction company will complete the project on time and according to the terms of the contract. If the construction company fails to do so, the surety company would be responsible for covering the costs of completing the project.

There are different types of performance bonds, including:

• Nonoperative performance bond: This is a performance bond that is not currently in effect but is activated upon the issuance of the buyer's letter of credit or other approved financing.
• Operative performance bond: This is a performance bond that has been activated by the issuance of the buyer's letter of credit or other approved financing.
• Revolving performance bond: This is a performance bond that is in continuous effect for the duration of the contract, usually plus an additional number of days (often 45).
• Up-front performance bond: This is a performance bond given before the issuance of the buyer's letter of credit or other financing.

Overall, a contract bond is an important tool for ensuring that contracts are completed on time and according to the agreed-upon terms. It provides protection for both parties involved in the contract and helps to minimize the risk of financial loss.