Which bond guarantees payment to subcontractors, laborers, and suppliers by the contractor?

The correct answer relates directly to the specific function of a payment bond in the construction industry. A payment bond is a type of surety bond that guarantees that a contractor will pay all subcontractors, laborers, and suppliers involved in a project. This bond serves as a financial safety net to protect those who contribute labor and materials to a construction project, ensuring they receive the compensation owed for their work.

This bond is crucial in maintaining trust and financial stability within construction projects, as it mitigates the risk of non-payment. When a contractor defaults or fails to pay, the payment bond allows the affected parties to seek compensation from the surety company that issued the bond.

In contrast, a performance bond ensures that the contractor will fulfill the contract terms and complete the project satisfactorily. A bid bond provides a guarantee to the project owner that the contractor will honor their bid if selected. A subcontract bond, which is less common, typically guarantees the subcontractor’s performance rather than the payment to them. Understanding these distinctions helps clarify the vital role that a payment bond plays in securing payment for work in the construction sector.