Importance of contractor license bond for a contractor

  • Contractor’s License bonds are a type of surety bond used by investors in construction projects. These protect against financial loss due to a contractor's failure to complete a project. A contractor vying for a project or job is required to buy contractor’s License bonds online. These are also known as construction bond as it provides assurance to the project owner against construction projects. Where larger construction projects are considered, these bonds break down in two parts: one to protect against in completion of job; while the other to protect against nonpayment of materials from suppliers and labor from subcontractors.


    Contractor bonds must be filed with the government agency responsible for regulating construction activity in the contractor’s jurisdiction. Many states handle contractor licensing directly, while others allow local municipalities to regulate the ownership of licenses.


    Once you buy contractor’s License bonds online, you enter into a three-party relationship. The parties involved are:

    1.Obligee -the investor/project (government agency) owners

    2.Principal- the party (contractor) building the project

    3.Obligor- the surety/Bond company


    By submitting a contractor’s bond, you provide financial and quality assurance to the obligee.


    You purchase a contractor’s license bond, but it is your client (the project owner) and the state you are licensed in that is insured, unlike a normal insurance, in which the person who purchases the insurance is insured. This states a contractor’s License Bond is insurance for others, paid by you.


    Reasons why buying a contractor’s license bond is important for a contractor:


    • A licensed contractor is easy to believe. A service of bonded contractor is always preferred as he makes sure that the project is done systematically within defined timeline.


    • A bonded contractor follows all state and central protocols. Being a licensed contractor you make sure that you are adhering to permits that are legitimately required.


    • Reduced Risk for clients as working with a licensed and bonded contractor provides insurance to them. This means that should any damage happen during the construction, clients are assured that you will take the responsibility for it. To get the best quotes to buy contractor’s License bonds online, contact us now.


    There are three types of contractor’s bond provided by surety:


    1. Bid Bond: A bid bond is issued as part of a bidding process by the contractor to the project owner, to provide guarantee, that the winning bidder will undertake the contract under the specified terms.


    1. Performance Bond: A bid bond is then replaced by a performance bond when a contractor accepts a bid and proceeds to work. The performance bond protects the owner against the financial losses, if the contractor’s work is not in accordance to the terms and conditions laid out in the agreed contract.


    1. Payment Bond: A payment bond is a guarantee that the winning contractor has the financial means to compensate their workers, subcontractors, and suppliers of materials. This is often known as labor and material payment bond.