Contractors' Bonds Law and Legal Definition

A contractors’ bond or surety bond is an agreement in which a third party guarantees the work of a contractor. Such bonds of two types:

a. performance bond which guarantees that the contractor will perform the contract and if s/he defaults and fails to complete the contract, the surety will complete the work or pay damages up to the limit of the bond;

b. labor and materials payment bond which guarantees the owner that all bills for labor and materials contracted for and used by the contractor will be paid by the surety if the contractor defaults.