Also known as a “performance bond,” the contract bond is essentially a guarantee that the contractor will properly execute and finish their project (like building a bridge or house or road for example). A way to think about a contract bond, is that it’s “good faith money”, which is there to protect the person hiring the contractor from the contractor doing bad work, or never finishing the project.
These are used all the time in construction jobs. They’re generally issued as a part of a ‘performance & payment bond’ which guarantees that the contractor will pay their labor and the material costs they’re obliged to. Anything related to a government construction job has is required to have a contract bond under the Miller act of 1932.
The premiums for contract bonds are directly related to the specific bond type, the bond amount and the applicant’s risk.