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Contractor License Bonds

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Contractor License Bonds promise that the contractor will operate his / her business as stated by the local or state government.  Generally all states require contractor license bonds.  The main purpose of these bonds are to protect the consumer from any wrongdoing by the contractor.

Contactor License Bonds are being underwritten similar to other commercial surety bonds.  The bonds are not particularly risky, therefore allowing for placement with a variety of different bonding companies.  Rates are similar to other commercial bonds, which vary greatly, depending on the applicant.  These bonds protect the customers, not the contractors.  The contractor is responsible for paying when a claim is filed.

There are two types of bonding capacities and each sets its own limits that the contractor is responsible for following. They are:

• A single bond capacity has a limit on individual jobs - every job must be under a preset limit.
• An aggregate bond capacity sets a limit for the total dollar value a contractor can perform at one time and can be spread over many jobs.

The following are the seven different types of contract bonds:

• Bid Bond - Promotes serious bids and guarantees the owner that the bidder is financially able to accept the job.
• Maintenance Bond - Guarantees that the work completed by the contractor will be without defect for a certain amount of time after completion.
• Payment Bond - Guarantees that the contractor will complete the project. It guarantees no financial loss to the owner if the contractor does not satisfactorily complete the project.
• Performance Bond - Guarantees no financial loss to the project owner in the event that the contractor does not satisfactorily complete the project.
• Site Improvement Bond - Ensures that mandatory improvement will be made to a property.
• Subdivision Bond - This is for new structures. It guarantees the state or city that mandatory improvements will be made to their property.
• Supply Bond - Guarantees the supplier will provide the materials as defined by the contractor. This is a contract between the supplier and consumer.

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