NASCLA Accredited Commercial General ContractorGeneral RequirementsEasy
A commercial general contractor is bidding on a project that requires a performance bond. The owner specifies that the bond must cover 100% of the contract value. What is the primary purpose of this performance bond from the owner's perspective?
- ATo guarantee that the contractor will pay all subcontractors and suppliers.
- BTo ensure the contractor performs the work in accordance with the contract documents.
- CTo provide general liability insurance coverage for the contractor.
- DTo compensate the owner for lost profits if the project is delayed.
Show answer & explanationAnswer & explanation
Correct answer: B. To ensure the contractor performs the work in accordance with the contract documents.
A performance bond primarily protects the owner by guaranteeing that the contractor will complete the project according to the terms and conditions of the contract. If the contractor defaults, the surety company will step in to ensure the project's completion, typically by finding a new contractor or providing funds.
Why the other options are wrong
- A. This is the purpose of a payment bond, not a performance bond.
- C. General liability insurance is a separate type of insurance that covers third-party bodily injury and property damage, not contract performance.
- D. While delays can incur costs, the performance bond's primary purpose is completion, not directly compensating for lost profits due to delays, unless specified and covered under specific bond conditions related to default.
Performance Bond
A surety bond issued by an insurance company or bank to a contractor to guarantee satisfactory completion of a project by the contractor.
- Protects the project owner against contractor default.
- Ensures the work is completed according to contract terms.
- Typically required for public works projects and large private projects.
Memory trick: A performance bond guarantees the show will go on as planned.