Contractors License Bond Fundamentals | Deco Buzz


Most states require individual workers and businesses to have a contractor license bond for any project they work on. This is one of the main conditions for obtaining a license. Moreover, this policy acts as a guarantee for their businesses. This gives added security to clients that contractors will work diligently.

Construction work

As explained on, most reputable companies and commercial workers ask for this bond to be issued. In this way, they want to warn of possible problems that could sabotage their work, the completion of the project and their reputation. It is an arrangement between them, the state and the company that sustains the link.

Why do you need a contractor license bond

Entrepreneurs in the United States work in different trades and on different projects. They are electricians, plumbers, builders, HVAC technicians, etc. They must be licensed and comply with all regulations imposed by local authorities. Only then will customers be able to trust them.

Regardless of the size and complexity of the project, many things can go wrong and lead to failure, disruption or financial loss. Even the most professional undertaker can make a single mistake that can cost millions. It is therefore essential to have adequate insurance for the job.

Parties included

The contractor license bond consists of three parts. The first is the creditor or a project owner (individual, company or the State, in the case of federal projects). The owner, whether private or public, can require that the undertakers carry this document. This will ensure that they will be paid if there is a financial or performance issue on the project.

The other two parties to this agreement are the principal and the surety company. The principals are commercial companies or individual workers hired by the creditor. Therefore, they must purchase this policy from the surety company, which will pay for any claims against the principal.

Not the same as insurance

As a contractor, you get the bond to protect you and your client from any issues that may arise during a project. If something goes wrong, your customers suffer a financial loss. So let’s say they suffered a loss due to your negligence, failure to follow state or local regulations, or tax issues. In this case, they can file a claim with the insurer (bonding company).

It is important to note that a contractor’s bond is not exactly the same as insurance. It works the same way, but with one big difference – sooner or later you’ll pay for coverage. Ideally, you will pay the customer for the damages and there will be no need to use a surety bond.

But if the contractor cannot pay the damage, the surety pays it and thus reduces the creditor’s damage. So the customers are happy, and you have a problem on your back. But it’s not like you’re free. Once the deposit has been paid for the claim, you must repay them within the agreed period.

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