Florida Building Contractor Business/Finance Practice Exam

What guarantees both job completion and payment of sub-contractors and suppliers?

1. Performance bond

2. Investment trust

3. Contract bond or surety bond

4. Insurance policy

The correct answer is: Contract bond or surety bond

A contract bond, often referred to as a surety bond, is specifically designed to provide guarantees regarding job completion and the payment of subcontractors and suppliers. This type of bond is arranged between three parties: the principal (the contractor), the obligee (the project owner), and the surety (the bonding company). When a contractor obtains a surety bond, it assures the project owner that the contracted work will be completed according to the terms of the contract. Furthermore, if the contractor fails to meet these obligations, the surety company is obligated to step in and ensure that the work is completed or to compensate the project owner for the costs incurred in hiring another contractor to finish the job. Additionally, the surety bond also provides assurance that subcontractors and suppliers will be paid for their work and materials, which helps to protect them financially. This assurance helps create a stable environment for all parties involved in the construction project, promoting trust and encouraging collaboration. In contrast, a performance bond, while also related to job completion, does not specifically address the payment to subcontractors and suppliers directly; its focus is more on the obligation of the contractor to complete the project. An investment trust typically relates to financial investments and does not involve construction work