Texas General Lines — Property and CasualtySurety and BondsEasy
A construction company, 'BuildFast Inc.', needs to secure a contract for a new municipal building project. The city requires a guarantee that BuildFast Inc. will perform the work according to the contract specifications and complete the project on time. If BuildFast Inc. fails to meet these obligations, the city wants to be compensated for any losses incurred. Which type of bond is BuildFast Inc. most likely to be required to obtain?
- APerformance Bond
- BJudicial Bond
- CLicense and Permit Bond
- DFidelity Bond
Show answer & explanationAnswer & explanation
Correct answer: A. Performance Bond
A Performance Bond guarantees that a contractor will complete a project according to the terms and specifications of the contract. If the contractor fails, the bond compensates the project owner for losses.
Why the other options are wrong
- B. Judicial bonds are required in court proceedings and relate to legal actions.
- C. License and permit bonds guarantee compliance with specific laws and regulations for licensed professionals.
- D. Fidelity bonds protect against employee dishonesty, not contract performance.
Performance Bond
A type of surety bond that guarantees a contractor will complete a project according to contract terms and specifications.
- Guarantees fulfillment of contractual obligations.
- Protects the project owner (obligee) from contractor default.
- Common in construction contracts.
Memory trick: Surety bonds: Contracts, Courts, or Crooks?