Which bond guarantees performance of a construction contract?

• A. Permit bond
• B. Performance bond
• C. Bid bond
• D. Maintenance bond

Answer: (B)

In construction contracts, a bond that guarantees the contractor will complete the work as specified in the contract terms provides the owner with solid protection that the project will be finished. This is what a performance bond does. If the contractor defaults or fails to perform, the owner can claim against the bond, and the surety will either cover the cost to complete the project or arrange for a replacement contractor up to the bond amount. The contractor is then typically responsible for reimbursing the surety.

Other bonds serve different protections. A permit bond guarantees compliance with laws and permit requirements, not the actual construction performance. A bid bond ensures that if you win the bid, you will enter into the contract and provide the required performance and payment bonds. A maintenance bond covers defects or issues that appear after completion for a specified period.

So the bond that guarantees performance of a construction contract is the performance bond.