North Carolina Building Contractor License Practice Exam

A ___________ is a guarantee to the owner that the project will be completed as planned.

1. Performance bond

2. Insurance policy

3. Letter of credit

4. Guarantee agreement

The correct answer is: Performance bond

A performance bond serves as a guarantee to the owner that the contractor will complete the project according to the terms outlined in the contract. It acts as a financial assurance, ensuring that if the contractor fails to fulfill their obligations—whether due to default, incompetence, or any other reason—the owner can claim the bond to recover losses. This bond is typically issued by a surety company, which evaluates the contractor’s ability to complete the project and provides the owner with a level of security against potential financial loss. In a construction context, performance bonds are crucial because they help maintain trust between owners and contractors, ensuring that projects move forward on schedule without financial jeopardy to the owner. This type of bond is standard practice in the industry and reflects a commitment to compliance with the contract’s specifications and timelines. Other choices, such as insurance policies, letter of credit, and guarantee agreements, do not specifically focus on the completion of the project itself in the same way. While these may provide different forms of financial security or support, they do not serve the direct purpose of guaranteeing project completion as a performance bond does.