Many states have regulations that mandate contractors to be “licensed and bonded” before engaging in construction work. But what exactly does that entail? Each state has its own set of rules for contractor licensing, and it is common for contractors to obtain a surety bond to ensure compliance with legal requirements. In this article, we will delve into the specifics of contractor license bonds, including their definition, who requires them, the beneficiaries they protect, and the process involved in obtaining one.
Table of contents
- 1 What is a contractor license bond?
- 2 A three-party agreement
- 3 Do all contractors need a license bond?
- 4 How much does a license bond cost?
- 5 What does a contractor license bond cover?
- 6 The bond claim process
- 7 How to get a Contractor License Bonds
- 8 Why Choose Our Contract Management Service?
- 9 Experience the Difference:
What is a contractor license bond?
A contractor construction license bond, commonly referred to as a contractor bond, is a form of surety bond designed to ensure that a contractor adheres to ethical practices and complies with local licensing regulations. In numerous states, counties, and cities, businesses are mandated to obtain a contractor bond as a prerequisite for obtaining a contractor license.
Distinguishing itself from other construction bonds such as payment or performance bonds, a contractor bond provides more extensive protection to the public and is overseen by a licensing board. Unlike project-specific bonds that safeguard the property owner and subcontractors for a particular project, contractor license bonds extend their coverage across all jobs undertaken by the contractor. This means that the bond remains in effect irrespective of the specific project and serves as an ongoing assurance of the contractor’s ethical conduct and compliance with licensing requirements.
A three-party agreement
In a Contractor License Bonds, there exists a three-party agreement involving the obligee, principal, and surety company.
The obligee represents the governing entity that stipulates the requirement of a surety bond for a contractor to secure a license. Examples of obligees include the California Contractors State License Board, the Nevada State Contractors Board, and the Oregon Construction Contractors Board.
The principal is the contractor obligated to procure the bond. In the event of a valid claim against the license bond, the principal is responsible for reimbursing the surety company for any payouts.
The surety company, serving as a third-party entity, issues the bond and guarantees payment to individuals facing financial harm when a contractor fails to fulfill their obligations.
While contractors are obligated to secure this coverage, it is essential to note that they are not the direct beneficiaries; instead, a contractor license bond functions to protect the interests of the public. General liability insurance, in contrast, is designed to safeguard the Contractor License Bonds