CSLB Contractor's Law & Business Practice Exam

What kind of bond protects homeowners when a contractor decides not to undertake a job after winning a bid?

1. Performance bond

2. Surety bond

3. Bid bond

4. Payment bond

The correct answer is: Bid bond

The correct answer, which pertains to the bond that protects homeowners in the scenario where a contractor decides not to undertake a job after winning a bid, is a bid bond. A bid bond provides a guarantee that the contractor will enter into the contract and perform the work at the bid price if awarded the job. If the contractor fails to do so, the bond ensures that the homeowner is compensated, usually up to the amount specified in the bond. Bid bonds are typically required during the bidding process, and they serve as a form of insurance for the homeowner against the risk of a contractor backing out after winning the bid. This protection encourages contractors to submit serious and feasible bids and reassures homeowners that they will not be left without recourse if a chosen contractor decides not to complete the job. To provide context, performance bonds, surety bonds, and payment bonds serve different purposes. A performance bond guarantees that a contractor will complete the project in accordance with the contract terms, while a payment bond ensures that subcontractors and suppliers are paid for their services and materials. A surety bond is a broader term that encompasses various types of bonds, including bid, performance, and payment bonds, primarily functioning as a guarantee from the surety company that the contractor will meet their