Estimating Practice Exam

What type of bond provides the right for damages from the bonding company if a subtrade fails to execute the subcontract?

1. Performance bond

2. Bid bond

3. Payment bond

4. Warranty bond

The correct answer is: Bid bond

A performance bond is designed to protect the project owner from financial loss if a contractor fails to fulfill their contractual obligations. In this case, it provides the right for damages from the bonding company if a subcontractor, or subtrade, fails to execute the subcontract as agreed. Essentially, the bonding company ensures that if the subcontractor does not complete their work, the project owner can make a claim against the bond to recover damages or ensure the work gets completed by another subcontractor, thereby mitigating potential delays and financial loss on the project. Bid bonds, in contrast, are used during the bidding process to ensure that the bidder will enter into the contract at their bid price if awarded the project. Payment bonds guarantee that the contractor will pay their subcontractors and suppliers, but they do not cover the contractor's performance issues. Warranty bonds provide protection for defects in workmanship or materials over a specified warranty period but do not directly relate to the performance of subcontractors.