What is a contractor’s bond?

Bonding protects the consumer if the contractor fails to complete a job, doesn’t pay taxes, or fails to meet other financial obligations, such as paying for supplies or subcontractors or covering damage that workers cause to your property

Construction bonds are a type of surety bond that protects against disruptions or financial loss due to a contractor’s failure to complete a project or failure to meet contract specifications. These bonds ensure a construction project’s bills will get paid.

Being bonded means that a bonding company has secured money that is available to the consumer in the event they file a claim against the company. The secured money is in the control of the state, a bond, and not under the control of the company.

Contractors can be required to obtain License Bonds and may need a Contract Bond on a bonded project.

Contractor License Bonds:  Required by state law, to be filed prior to issuance of license, to engage in a particular business. 

Street Obstruction and Right of Way Bonds:  Required by Municipalities, Cities, States, and the Federal Government. Each has their own specific surety bond form. Amount of the surety bond varies. Job specific.

Contractor License Bonds –

License Bonds required by state law, to be filed prior to issuance of license, to engage in a particular business.

Street obstruction and right of Way Bonds required by municipalities, cities, state, and the federal government. Each has their own specific surety bond form.  Amount of the bond varies by governmental agency requirements.  They are job specific.

Claim Examples:

Contractor takes deposit and does not perform

Faulty Work

Taxes & Contributions to the state

Nonpayment to suppliers and subcontractors on the jobsite

$12,000 WA contractor license bond limits to homeowners is $6,000 and subs/suppliers is $6,000

Contract Bonds: Bid / Performance / Payment

Bid Bond given to a bidder for a construction contract that the bidder, if awarded the contract, will enter into the contract and furnish performance and/or payment bond.  Default will ordinarily result in liability to the obligee for the difference between the amount of the principal’s bid and the bid of the next lower bidder who can qualify for the contract.

Performance Bond guarantees performance of the terms in the written contract.

These bonds typically include the payment bond (labor and materials) and maintenance bond liability

Guarantee performance of a contract. Obligee will be indemnified for loss resulting from contractor’s failure to perform work according to the contract, plans, and specifications at agreed price and time allowed.

Generally, as a rule, a performance bond remains in force until the stated discharge date which is usually either after practical completion of the works or after making good any defects

Payment Bond guarantee payment to labor and material used in the work performed under the contract. This can be included in the performance bond. If included in performance bond a separate payment for labor and material bond is not given.

Source: RLI Insurance