Oregon Construction Contractors (CCB) Practice Test

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What is the function of a performance bond in construction?

To provide safety to workers
To guarantee the contract completion
To cover liability insurance
To secure financing for the project

The correct answer is: To guarantee the contract completion

The function of a performance bond in construction is to guarantee the contract completion. This type of bond is a security mechanism that ensures that the contractor will fulfill their obligations as specified in the contract. If the contractor fails to complete the project according to the terms agreed upon, the owner can make a claim against the bond. The bond issuer, typically an insurance company or a surety company, will then compensate the project owner for any financial losses incurred due to the contractor's failure. This serves to protect the project owner and ensures that the work will be completed, either by the original contractor or by another contractor engaged by the surety. Other options, such as providing safety to workers or covering liability insurance, relate to different aspects of construction risk management but do not directly relate to the function of a performance bond. Similarly, securing financing for the project falls under different financial instruments and agreements, rather than the specific purpose of a performance bond.