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A contract bond is kind of performance bond that serves as a guarantee that all duties and service promise by a contractor will be fulfilled as it is stipulated in the contract. Legal contract bonds normally come with a payment bond, which is a financial compensation for all work and material expenditures accrued in the event of a default. This should also include the protection of any expenses that have already occurred during the project that was abandoned or left incomplete, whether it be supplies or labor. As a result the clients are protected from potential losses in the event of a provider or contractor failing to deliver on the services promised in the contract.
Also known as a contractor performance guarantee, a contract bond is a type of contract made for construction projects and work. In most cases, the bond is put together by a surety agency at the request of the main contractor belonging to the project. Additionally, there are situations in which a subcontractor connected with a construction project can sign up for a contract bond. This will protect them also from any potential losses that might arise as a result of the project being abandoned or canceled, thus allowing them to be reimbursed on the resources and time they have invested.
The range of coverage offered in the contract bond will differ, depending on the procedures written in the construction contract itself. Typically, the bond does help in offsetting costs i.e. Labor costs along with the materials that have been used in the construction project. In some instances, the protection extends to include materials that were not used in the construction project, in such cases the materials are returned with full credit, providing that there is no possibility of the materials being used in other projects. Furthermore, trade laws that pertain to the construction industry in the region where the constructing activity is taking place could have some influence on the precise terms of the contract bond.
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