What type of bond is a labor and material bond classified as?

A labor and material bond is classified as a surety bond. This type of bond guarantees that specific obligations will be fulfilled, primarily protecting parties such as project owners from financial loss if a contractor fails to pay subcontractors or suppliers for labor and materials.

In the case of a labor and material bond, it ensures that the contractor will pay all laborers and suppliers associated with the project. If the contractor defaults, the surety company that issued the bond is responsible for covering any financial losses incurred by those unpaid parties, up to the bond amount.

Understanding that this bond functions as a guarantee provided by a third party (the surety), rather than a direct contract between two parties (the contractor and the project owner), is essential. This distinguishes it from performance bonds, which specifically ensure that the work will be completed according to the contract terms. A labor and material bond is thus specifically designed to address financial responsibility for labor and materials, reinforcing its classification as a surety bond.