Your Comprehensive Guide to Contractor License Bonds

Reputable contractor specialists must comply with state laws to practice their commercial trade legally, protect their business and customers, and ensure safe and high-quality work. Failure to follow the mandated rules can lead to significant penalties, such as criminal charges, fines, and termination of your contractor license. For this reason, all states need contractor specialists to be licensed and bonded by buying a surety bond.

This article will be your comprehensive guide to contractor license bonds.

What Are Contractor License Bonds?

Contractor license bonds, or contractor bonds, are surety bonds that ensure professional contractors will deliver ethical results and strictly comply with local regulations and building codes. Many localities require businesses to get a contractor bond to qualify for a license.

Unlike other construction bonds, contractor bonds provide broader protection, and a licensing board strictly regulates them. For instance, contract bonds like payment or performance bonds expire after builders complete the project. On the other hand, a contractor license bond covers all projects.

How Much Do They Cost?

Contractor license bond amounts vary across states, ranging from $1,000 to $50,000. Sometimes, other states may require higher prices.

What Do Contractor License Bonds Cover?

General liability insurance protects the company from claims involving bodily injuries and property damage. On the other hand, a contractor license bond protects the employees, obligee, suppliers, subcontractors, and suppliers.

Failure to comply with regulations and uphold responsibilities will result in bond claims to recover damages.

Who Is Involved in the Agreement?

The obligee requires the contractor to get a surety bond to make them operate legally.

The principal is the person or company responsible for acquiring the bond. They must also pay the surety company back for any money the company pays out if a valid claim arises against the bond.

The surety company issues the bond to guarantee payment if a contractor fails to uphold their responsibility. They’re responsible for requesting reimbursement from the contractor after making a claim payout on the contractor’s behalf.

Who Can File Which Claims?

If a project fails, clients can sue for property damage, neglected work, excessive progress payments, and deviation from contract specifications.

Subcontractors and suppliers may file if the contractors don’t pay wages and dues on time. On the other hand, obligees can file if the contractors don’t pay licensing fees.

How to Get a Contractor License Bond

Start by familiarizing yourself with the local licensing requirements so you can find a reputable surety company and apply for a contractor license bond.

When you apply for a contractor license bond, the company will look at different factors, such as credit score, bond limit, and work experience, to determine eligibility. They may also review the contractor’s business and personal finances to assess the risks associated with each applicant and if they can pay the surety company back when a claim arises.

After a commercial contractor buys the license bond, they must file the document with the obligee. The obligee may ask you to file it electronically, send an emailed copy, or provide the original signed and sealed bond.

Although most surety companies require commercial contractors to renew their licenses yearly, some firms might have multi-year terms. Understanding the bond renewal helps you comply with regulations and ensure no lapses in coverage.

Do I Need a Contractor License Bond?

Every locality has its set rules for licensing and bonding. You should get a contractor license bond for several locations, mainly if you serve multiple areas.

Ensuring Secure Operations

Reputable commercial contractors need contractor license bonds to protect them from damage and consistently deliver high-quality, ethical work. Failure to comply can result in legal trouble and license termination.

At Pascal Burke Insurance Brokerage Inc., our commercial contractor specialists offer contractor license bonds for drywall contractors to ensure high-quality operations throughout the project. Visit our website to get a quote, or call us at 877-893-7629.