What type of bond is typically required for contractors to guarantee performance?

A performance bond is a type of surety bond that contractors are typically required to obtain to guarantee their performance on a project. This bond ensures that the contractor will fulfill their contractual obligations as outlined in the agreement with the project owner. In the event that the contractor fails to meet these obligations—such as completing the work on time, adhering to specifications, or maintaining quality standards—the performance bond provides financial protection to the project owner. The surety company that issues the bond is then responsible for compensating the project owner or ensuring that the work is completed satisfactorily, thus mitigating any potential financial loss.

The other types of bonds mentioned serve different purposes. A bid bond is generally required when a contractor submits a bid for a project, guaranteeing that they will enter into a contract if selected. A supply bond ensures that suppliers fulfill their contractual obligations to provide materials needed for a project. A license bond, on the other hand, is often mandated by state or local regulations to ensure that businesses comply with industry laws and regulations. These distinctions clarify why the performance bond is specifically relevant to guaranteeing contractor performance.