Other Than Life (OTL) Practice Exam

What type of bond guarantees the performance of another's work?

1. Surety bond

2. Liability bond

3. Performance bond

4. Labour bond

The correct answer is: Performance bond

A surety bond is a specific type of bond that guarantees the performance of another's work, often associated with contracts and obligations. When a surety bond is in place, one party (the surety) agrees to take on the responsibility for another party's (the principal's) performance, ensuring that a specific project or obligation is completed as per the terms of the contract. If the principal fails to meet their obligations, the surety must compensate the party who would otherwise be left at a loss. While the term "performance bond" might sound similar, it generally refers to bonds that guarantee that a contractor will perform according to the contract specifications. Thus, the performance aspect is encapsulated within the broader concept of surety bonds. Liability bonds and labor bonds do not specifically focus on guaranteeing the performance of another's work; instead, liability bonds aim to protect against legal liabilities, while labor bonds might address wage and benefit protection for workers. In essence, the surety bond acts as a safeguard, providing assurance to the party requiring the bond that the work will be performed or that they will be compensated in case of a default. This clear connection to guaranteeing work performance makes the surety bond the appropriate answer for this question.