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The Surety Bond Blog

05
Dec
2007

What Is A Bonded Contractor?

Many contractors advertise that they are “bonded”, but do you know what it means to be bonded? Most don’t, including the contractors themselves. We will go over what it means when a contractor is bonded, which bonds are needed to become bonded and how to get bonded if you’re a contractor yourself.

What Does It Mean To Be Bonded?

When a contractor states they are bonded, it means they either have a surety bond, fidelity bond or both. Most state or local governments require contractor license surety bonds for contractors to obtain their license, so let’s start with them.

Contractor License Bonds:

Contractor license bonds protect the public, as they guarantee contractors will perform according to their license, and can even guarantee the contractor’s work performance. The bond guarantee varies by the government agency requiring the bond, as each one has their own bond requirements, bond form language and explicit guarantees. If a contractor does not fulfill the guarantee, a claim can be filed on the bond, which they will be responsible to pay. Visit our contractor license bond general information page to learn more about contractor license bonds, or watch our contractor license instructional video below (the tool mentioned in the video can be found here).

 


 

Fidelity Bonds:

It is also possible that a bonded contractor has a fidelity bond, which are very different from surety bonds, and are not a guarantee at all. Fidelity bonds are insurance products that protect against employee dishonesty such as theft, and are generally optional. To learn more about fidelity bonds, watch the fidelity bond video in the playlist above, or visit our fidelity bond insurance catalog.

Contract Bonds:

Lastly, a contractor who wants to be bonded and perform work on public construction jobs needs a surety bond in a different category called contract bonds. Contract bonds, such as bid and performance bonds, guarantee that the contractor’s work will be done according to a contract. Like claims on license bonds, if a contractor does not perform according to the contract, a claim can be filed which they are responsible to pay. Take a look at our contract bond catalog for more information about contract bonds, or watch the contract bond video in the playlist above.

How Do I Get Bonded?

Whether you are a contractor who needs a surety bond or are interested in a fidelity bond, you will need to apply online to get an approval. Thanks to our specialty programs, you can qualify for a contractor license bond even with credit issues. Fidelity bonds on the other hand, are easily obtained since they are not a guarantee, but a form of insurance for you or your clients.

Underwriting standards for contract bonds can be tighter because only larger contractors with strong CPA business financials and experience will be considered with a weak credit history.

Hopefully you have a better understanding of bonding and the process. You can also find out whether you need to get a surety bond or insurance by using our insurance bonding guide. If you have any additional questions, please leave a comment below or contact a bond expert in our office.

 

 

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Eric is the Webmaster of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog.

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Comments (16)

Category: Commercial Bonds, Contractor License Bonds

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16 Responses

  1. why are the surety companys taking advantage of the hard times
    hard to understand why my bond went from 79 dollars a year to 1334 . and there all the same all in conspiracy with the state of california but thats are govenor who i voted for
    go figure

    1. Dominick,

      I can understand your frustrations. Let me clarify the situation of the surety bond market…

      Bonds are NOT insurance, but actually a form of credit. They make a guarantee on behalf of your company. Therefore, if your company's assessed risk increases, you may no longer fall under a standard market program. The rate filings for high risk programs have been in place for years, it is not a reflection of the current economic conditions. It actually takes up to a year for a surety to file new rates within a state.

      Ask your bond agent why you were dropped from the previous program you were written through. By correcting those problems, you should see a more reasonable rate again.

  2. Suppose that a contractor does not fulfill his obligation to fully perform to a contract. And, a person goes thru the steps of requesting restitution, but gets no satisfaction. How does a person put a lien on the contractors' bonding.

    1. I am assuming the contract wasn't specifically bonded….

      If it wasn't, you need to see if the state or local municipality required a bond to be filed with their contract license. If there is a bond in place, you should be able to make a claim with the government department requiring it.

  3. My contractor was not bonded who put my fence up, now my neighbor is bringing me to small claims court for property damage. Shouldn't the contractor be liable bonded or not?

  4. I had a licensed and bonded contractor start remodeling my home and just quit in the middle of the job, leaving my home unable to live in. Could I sue his bond company for my money back since he refuses to give up the amount to finish the job? Mind you, he walked off with40,000.00 dollars

    1. Keshia,

      Sorry for the late response. Hopefully the contractor you hired truly was licensed and bonded. You'll need to contact the bond company who wrote the surety bond to file a claim.

      Good luck.

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  6. I have choosen Importance of Bond in the construction industry as my project topic. Your write up was very useful, I have been able to understand tthe topic I have choosen, thank you.

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  8. Eric, as an owner/developer, which of the following scenarios provides the most protection for the owner: (1) requiring P&P bonds of subcontractors only, (2) requiring a P&P bond of the general contractor only, or (3) requiring P&P bonds of both subcontractors and the general contractor? It's my understanding that subcontractor bonding is redundant and unnecessary if the GC is bonded. Is that correct?

    1. Hey Morgan,

      Each contract should be bonded for maximum protection.

      The contract between the Developer and the GC for instance – if bonded, fully protects the developer from a default.

      The sub-contractors have a contract with the GC. If each of those sub contracts are bonded, then the GC is protected on each of those sub contracts.

      The developer however, is not directly protected when the GC does not post a bond, but the subs do post a bond to the GC.

      For instance, what happens when the project is completed, however the GC is having cash flow issues, doesn't pay all of the subs per the contract and the subs all smack UCC lien filings on the property? A Performance & Payment bond from the GC to the developer would have protected in that scenario.

  9. My son is a contractor and was licensed and bonded, he ran into some trouble with a client and therfor could not pay his materials bill to a company. They went for his bond which unfortunatley I had purchased years ago. The bonding company paid the material company and now want me to pay them. After years of paying for a bond and no claims, how can they come after me for not paying one material bill. It sounds like you pay me money for a bond and if they have to pay and then you have to pay them again. What the ———

  10. Hey Roger,

    The surety bond is not insurance for the contractor, in this case your son. It protects the public by guaranteeing work will be done properly and that suppliers will be paid. Since the bill was not paid to the materials company, a claim was filed and the surety company stepped in and paid it. But the surety always comes back to the bond holder for reimbursement. When your son signed the indemnity agreement, he agreed to repay the surety for any claims that arise.

    You can also watch our video to learn about how claims work here :http://www.jwsuretybonds.com/info/videos/general/avoid-claims.htm

    Let me know if you have any other questions.

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