What distinguishes a performance bond from a payment bond?

A performance bond is specifically designed to guarantee that a contractor will fulfill their obligations as per the contract, ensuring that the project will be completed according to the specified terms and conditions. This bond serves as a form of protection for project owners, as it provides a financial guarantee that the contractor will complete the work satisfactorily. If the contractor fails to complete the project, the performance bond can provide the necessary funds for the hiring of another contractor to finish the work.

The other options relate to different aspects of bonding and project requirements. A performance bond does not ensure payment to subcontractors; that is the function of a payment bond. Compliance with labor laws is also not the primary focus of a performance bond. Furthermore, while project delays can lead to additional costs, a performance bond does not specifically cover these costs; rather, these concerns are also generally addressed with payment bonds and other project management strategies.