Does your state require that you carry a surety bond, often called a contractor’s license bond? Are you aware of the many different requirements for each state? As a contractor it’s important that you understand how to obtain your contractor bond and why you are required to carry it.
First and foremost what is a contractor’s license bond?
A contractor’s license bond is purchased by a contractor as a guarantee to their clients of their compliance with state laws. This provides the client with financial assurance. The particulars of the size of the bond, what causes a bond payout and what other types of bonds may be required differ from state to state.
Contractor’s License Bonds may be similar from state to state; however, there are important differences and requirements that should be understood. For example:
– License bonds are required by the Arizona Registrar of Contractors
– A bond is required to cover damages due to noncompliance with license standards
– Bonds vary by size from $ 2,500 to $ 90,000 depending upon their license type and how much volume of work a contractor performs
– Contractors that have conducted business in Arizona for less than a year are also required to obtain a Sales Tax Bond.
– License bonds are required by the California Contractors State License Board (CSLB)
– A bond is required to cover damages caused by violations of the Contractors License Law
– All contractors license bonds are for $ 12,500
– Responsible Managing Employees and Responsible Managing Officers that own less than 10% of the business are required to obtain a separate $ 12,500 bond
– The CSLB may require a separate Disciplinary Bond for contractors who have been disciplined; the amounts of these bonds vary.
New Mexico –
– License bonds are required by the New Mexico Regulation & Licensing Department
– A bond is required to pay for cost to repair building code violations
– All contractors license bonds are for $ 10,000
– License bonds are required by the Nevada State Contractors Board (NSCB).
– A bond is required to cover willful and deliberate violations of a construction contract as well as employees damaged by a contractor’s failure to pay wages
– Bonds vary by size from $ 1,000 to $ 50,000 and are set by the NSCB. Their decision is based on such factors as type of business, experience and monetary limit granted.
– Residential pool and spa contractors must also obtain a consumer protection bond. The bond amount, also set by the NSCB, varies from $ 10,000 to $ 400,000
– License bonds are required by the Oregon Construction Contractors Board (CCB) and the Oregon Landscape Contractors Board
– A bond is required in the event the contractor is ordered by the CCB to pay damages as the result of a CCB final order
– Bonds vary by size from $ 3,000 to $ 75,000 depending upon their license endorsement classification as well as how much volume of work a contractor performs. Contractors that work on public works projects larger than $ 100,000 must obtain a $ 30,000 Public Works Bond.
– License bonds are required by the Washington State Department of Labor & Industries
– A bond is required to pay unpaid wages, unpaid material suppliers, unpaid taxes to the State of Washington and to cover damages due to breach of contract
– Bonds vary by size from $ 4,000 to $ 12,000 depending on the type of contractor
Whether or not your state requires a license bond, there are other bonds that may be required by the project you are bidding on.
Other types of contractor’s bonds
Bid Bonds – Submitted by the contractor with his bid for a specific project. Usually 5-20% of the total bid. A bid bond protects projects from contractors that have bid too low and discover that they cannot meet their bid obligations.
Performance Bonds – This type of bond guarantees contract performance by the contractor. The surety company’s capital and surplus back this guarantee up to the financial limit of the bond.
Payment Bonds – A payment bond guarantees that the contractor will pay certain bills for labor and materials. The surety company backs this guarantee up to the financial limit of the bond.
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