State Farm Insurance License Practice Exam

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What is the function of a Bid Bond?

To guarantee payment for completed work
To ensure a contractor will enter into a contract if chosen
To provide protection against material inflation
To secure financing for construction projects

The correct answer is: To ensure a contractor will enter into a contract if chosen

The function of a Bid Bond is to ensure that a contractor will enter into a contract if they are selected for the project. This type of bond is primarily used in the construction industry during the bidding process. It provides a guarantee to the project owner that the contractor will accept the terms of the contract and begin work if they win the bid. When a bid bond is in place, it protects the project owner from the risks associated with a contractor backing out after winning the bid. In this context, if the chosen contractor fails to comply, the bid bond ensures that the project owner can seek financial compensation, usually in the form of a penalty that the contractor has agreed to upfront. While payment for completed work refers to a different type of bond, such as a performance bond, and material inflation and financing are related to economic considerations in construction but are not the purpose of a bid bond, this specific focus on securing the commitment of a contractor upon winning the bid is what solidifies option B as the correct choice.