What is a Contractor’s Bond?

by rhoda on July 28, 2012

All licensed general contractors in the State of California are required to have a Contractor’s Bond in the amount of $12,500. The bond is filed for the benefit of consumers who may be damaged as a result of defective construction or other license law violations, and for the benefit of employees who have not been paid wages that are due to them.

You might be surprised to learn that the common phrase “licensed, bonded, insured” is not permitted on promotional materials! Contractors are forbidden by law to advertise the fact that they are bonded as it could lead the public to believe there is a higher level of protection than might be the case.

To learn more about the nuts and bolts of bonds, here’s a guest article from Sara Aisenberg (thanks Sara for all this great information and your time!):

Sara Aisenberg is the executive writer for SuretyBonds.com Facebook site, one of the nation’s leading surety providers and an expert in the contractor bonding industry. As part of SuretyBonds.com’s educational outreach program, Sara helps consumers and professionals alike understand the importance of surety bonds in a number of industries, such as contractor bonding.

As a project owner, you obviously want to protect the investments you make in a construction project. Fortunately, there’s a great way you can verify whether you’re working with reliable construction professionals. The Contractors State License Board (CSLB) of California requires contractors in the State of California to be licensed before they can legally practice their trade. A requirement for obtaining a license is a surety bond, which is a special type of insurance policy used to guarantee professional performance and keep project owners from losing their investments.

What is a Surety Bond?
A surety bond is a legally enforceable contract that binds together three separate parties.

  1. The contractor that buys the contractor surety bond is the principal party.
  2. The state agency that requires the contractor to purchase the surety bond is the obligee party.
  3. The company that provides the contractor surety bond is the surety party.

By purchasing a Contractor’s Surety Bond a California contractor promises to fulfill the bond’s terms, which state that the contractor will perform jobs ethically and in accordance with the law.

Whom does a Contractor Surety Bond Protect?
Contractor bonds protect you, the project owner. When it comes to hiring a California contractor, you need to be sure that the professional you hire is licensed and bonded. Why? Because by having a surety bond, the contractor pledges to the state of California that he will complete jobs according to licensing laws and other industry regulations. With a bond in place, this pledge is then made to you when you hire the contractor.

In the event that the contractor you hire does not adhere to the regulations of the bond and the state of California, the surety bond protects you and the state from suffering the consequent losses (financial and otherwise).

How do I Know if a Contractor is Bonded?
It’s mandatory for all California contractors to have a surety bond before they be licensed to legally work in the state, so all licensed contractors you interview should be bonded. To verify that a contractor’s license is valid and that his bond is up to date, ask to see his credentials or consult the California Department of Consumer Affairs.

Although all contractors who wish to practice business legally will be bonded and licensed, a contractor license bond does not guarantee that a contractor will execute a job well. To ensure that your expectations are met and that your construction project is completed to your liking, meet with a number of contractors before you decide on the one you’d like to hire. With the qualified contractor’s expertise and his legal obligation to ethically perform his job, the cards are in place for you to love the outcome of your construction project.

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