What type of bond guarantees that a contractor will complete a project as per the contract terms?

A performance bond is a financial guarantee that ensures a contractor will fulfill their obligations as specified in a contract. When a contractor obtains a performance bond, it provides the project owner with assurance that the project will be completed according to the terms and conditions laid out in the contract, including quality, timelines, and specifications.

If the contractor fails to meet the contract requirements, the performance bond can provide funds to hire another contractor to complete the project or cover any losses incurred due to the contractor’s default. This type of bond is crucial in construction projects as it protects the interests of the project owner and ensures that the agreed-upon work will be carried out.

In contrast, other bond types serve different purposes. A bid bond ensures that the contractor will honor their bid if selected for the project, a payment bond guarantees that subcontractors and suppliers will be paid, and a license bond involves compliance with licensing laws and regulations rather than project completion. Each bond has a unique role in the construction process, but the performance bond specifically addresses the completion of the project per the contract terms.