Which type of bond provides indemnification to the obligee for losses due to the principal's failure to fulfill a contract?

A performance bond is specifically designed to provide indemnification to the obligee, which is typically the party or entity that requires the bond, for losses incurred as a result of the principal's failure to fulfill the obligations of a contract. In essence, the performance bond guarantees that the project or job will be completed according to the terms agreed upon in the contract. If the principal defaults—whether by not completing the work, not adhering to the specifications, or failing to meet the deadlines—the obligee can make a claim against the bond. This helps ensure that financial losses caused by the principal's non-performance are covered, offering protection and peace of mind to the obligee.

In contrast, a license bond is related to compliance with licensing requirements and does not cover performance issues. A bid bond is associated with the bidding process, securing that a winning bidder can enter into a contract and provide the necessary performance bond if awarded. The lost instrument bond targets circumstances where instruments such as certificates or notes are lost, ensuring that the financial institution won't incur issues arising from the loss, rather than focusing on contract performance. Thus, none of these options provide the same indemnification for contract fulfillment that a performance bond offers.