Contractor License Practice Exam

What is a guarantee that a contractor will pay subcontractors, laborers, and suppliers on a project called?

1. Performance Bond

2. Payment Bond

3. Contract Bond

4. Surety Bond

The correct answer is: Payment Bond

The term that refers to a guarantee that a contractor will pay subcontractors, laborers, and suppliers on a project is known as a payment bond. This type of bond is specifically designed to ensure that everyone involved in the construction project, particularly those who provide labor and materials, will receive payment as agreed. It protects the financial interests of subcontractors and suppliers, allowing them to claim payment if the contractor fails to make the necessary payments for services rendered or materials supplied. A performance bond, in contrast, guarantees the contractor will complete the project according to the contract terms, but it does not specifically address payment obligations. A contract bond is a broader term that can include various types of bonds related to the execution and performance of a contract, and a surety bond refers to a bond that includes the parties involved in the guarantee, typically encompassing both performance and payment aspects. However, in the context of ensuring payment specifically to subcontractors and suppliers, the payment bond is the most relevant term.