Which instrument provides financial protection if a contractor defaults?

• A. Performance bond.
• B. Waiver of lien.
• C. Warranty.
• D. Subordination agreement.

Answer: (A)

The key idea is protecting the project owner from financial risk when a contractor fails to finish or properly perform the work. A performance bond is a surety arrangement that guarantees the contractor will complete the project according to the contract. If the contractor defaults, the owner can claim against the bond to cover the costs of finishing the work or repairing deficiencies, up to the bond’s limit. This provides a ready source of funds to keep the project on track without bearing the full financial burden alone, and the contractor becomes responsible to the surety for any costs beyond what the bond covers.

Think of it as the project owner having a safety net that ensures completion or compensation, rather than relying solely on the contractor’s promise. By contrast, a waiver of lien simply prevents a lien from being filed against the property, not a financial remedy for default; a warranty covers defects after completion but doesn’t address non-performance; a subordination agreement changes the priority of debts, not contractor performance.