North Carolina Building Contractor License Practice Exam

What is the best form of protection against subcontractors’ nonperformance?

1. Performance bond

2. Insurance policy

3. No limitations exist

4. Contract clause

The correct answer is: No limitations exist

The focus of the question is to identify the most effective way to safeguard against subcontractors failing to fulfill their contractual obligations. A performance bond is a financial guarantee that ensures the completion of the project according to the contract terms, and it serves as a layer of protection for the contractor. In the event that a subcontractor does not perform as agreed, the owner or the general contractor can claim the bond amount to cover losses incurred due to that nonperformance. While insurance policies can provide coverage for various risks, they typically do not specifically address issues of subcontractor performance. Contract clauses can outline expectations, but they do not offer financial security or assurance of performance. In the context of this question, stating that no limitations exist does not recognize the need for protective measures that can be established through financial instruments like performance bonds. This option glosses over the importance of proactive risk management strategies that can safeguard contractors from potential losses associated with subcontractor nonperformance.