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A contractor’s bond must be issued by an insurance carrier admitted by the Department of Insurance in the state that work is performed. The insurance company that issues any surety bond will be referred to as the “surety company” or “bond company” as the contractor you are the Principal, the surety bond company as the Obligor, and the ‘License Board” as the Obligee.

The surety company will provide the CSLB a guarantee (the surety bond) that vendors, customers, suppliers and employees of a licensed contractor will receive payment for financial damages due to a violation of a Contractor License Law amounting to several thousands of dollars depending on your state (“penal sum” or “bond amount”).

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When Do I Need a Bond?

• When stated by the state or county.
• Performance and Payment bonds are contract requirements of the owner or prime contractor.

What Does a License Bond Cover?

• A license bond provides assurance to your customer that you will perform your contracted work and adhere to state or county guidelines.

License Bond

A license bond is used to obtain or maintain your contractor license. A license bond is required in most states, and is your guarantee that you won’t violate any state law regulations.

 Every year the regulatory agencies receive thousands of complaints regarding unlicensed contractors, don’t be a part of that statistic!

Bid Bond

Bid bonds keep the bidding process fair for all parties involved. It guarantees that the successful bidder in the process will enter the contract and will provide the required contract bonds.

When you are in the bidding process of a project, there may be a requirement to include a bid bond with your submitted bid documents. This type of bond provides financial assurance that if you submit a bid and are awarded the contract, you will enter into a formal contract with the owner and post a performance and payment bond if required.

Performance Bond

Also known as a contract bond, performance bonds are required by law for any public construction projects. Contractor performance bonds ensure you’ll follow through on your end of a contract and complete construction in the time and manner agreed upon.

These types of bonds are required for prequalifying a contractor and providing assurance that you are properly vetted to perform the work. This also provides financial protection to the obligee should the contractor default on their contractual obligation. At the same time this bond ensures that the contract will be performed properly and that laborers and suppliers will be paid for their work and the materials provided.

This type of bond is for a project-specific surety between a principal and an obligee. Contract bonds cost between 2.5% and 3% of the contract amount and this rate is based on the financial stability, experience, and proven reputation of the contractor as well as the project details.

The process of the contract bond goes as follows: letter of bondability, bid bond, performance/payment bond then the project may commence.

Payment Bond

Once you have been awarded the contract (hooray!) the project owner (obligee) will include all the requirements they expect for performance (written within a contract) and or a payment bond. The performance bond is a surety providing a credit line guaranteeing the performance of work as specified by the contract. A payment bond guarantees payment to labor suppliers and material providers.

Payment bonds are a type of contract bond required by law for any work on public projects. Contractor payment bonds work to protect subcontractors, day laborers, and materials suppliers against non-payment.