Michigan Residential Builders License Practice Test

What does a performance bond ensure for a construction contractor?

1. Insurance against theft

2. Completion of the project for the contracted sum

3. Payment for subcontractors

4. Coverage for workplace injuries

The correct answer is: Completion of the project for the contracted sum

A performance bond is a type of surety bond that ensures that a construction contractor will complete a project according to the terms of the contract. If the contractor fails to do so, the bond provides financial assurance that the project will be completed, either by the contractor or, if necessary, by another party. This means that clients or project owners are safeguarded against potential losses incurred from a contractor's non-performance. While insurance against theft, payment for subcontractors, and coverage for workplace injuries are important aspects of construction projects, they are not the primary function of a performance bond. The bond specifically addresses the obligation of the contractor to fulfill the terms of their contract, thereby providing peace of mind to the project owner regarding timely and contractually compliant completion of the work.