Contractor License Bond

A contractor license bond is a type of surety bond. It is usually confused with a construction contractor bond, but both have very different purposes. A construction contractor bond is a special bond issued specifically for a construction project. A contractor license bond is a license bond that is required for any construction professional. They have the goal to assure that the construction professional will work within the frames of the specific regulations included in the bond. Contractor license bonds also oblige the construction professional to work in full accordance to the state laws that regulate the construction industry.  Construction license bonds are a requisite for any construction professional that wishes to work or start a project within the construction industry. While a construction contractor bond protects the costumer from any default on the project itself, the contractor license bond protects the costumer for any default or unlawful acting from the construction professional. The exact implications and expectations for a contractor license bond can change according to the specific language in which the bond was underwritten, and to the regional law regulations and the requirements.

As with any other surety bond, a contractor license bond is a legally enforceable contract where three parties are involved. The first one is known as the Principal. The principal is the construction professional that seeks to work in the construction industry. The construction professional needs to be bonded before starting any new project. The bond acts as a financial guarantee that the professional will act and work within the state laws and regulations, as well as any other specific regulation stipulated in the legal language of the bond.

The second party is known as the Obligee. A state government entity usually represents the obligee. The obligee is the party that requires the particular to be bonded before issuing a permit to the construction professional that would allow him to start working. The bond also protects the obligee from any financial loss if the principal fails to act within the agreed regulations. Through the demand of bonds, the state government agency has better regulation over the transactions, businesses and procedures involved in the construction industry.

Finally, the third party is the Surety. The surety is the party that will sell, underwrite and issue the contractor license bond. Most of the time, an insurance company represents the surety party for a bond. This happens because the surety needs to have strong financial support to endure possible claims. As the issuer of the bond, the surety has certain specific obligations towards the bond and the obligee. If the principal ever engages in unlawful actions or violates any of the agreed regulations on the bond, the obligee can make a claim against the bond. The surety will study the claim in order to determine if it is valid. In the event of a valid claim, the surety will pay the obligee for the charges of harm or damage. Unlike insurance, in a contractor license bond, the surety will ask the principal for a reimbursement of the paid fees plus any other legal fees incurred during the study of the claim.

The average price for a constructor license bond ranges around $10,000. California has a coverage price for $12,500, Washington and Florida have coverage price for $10,000. These prices might change depending on the requirements asked by the obligee or the particular.

Construction license bonds are a useful way to assure good-quality service provided by any certified construction professional. It is a financial guarantee that helps protect the customer and the obligee from any possible financial loss. It also promotes lawful and regulated service, procedure and use of materials. A contractor license bond will help promote a good business relationship between the construction professional and all of his customers; achieve better regulation of the industry, and provide solid, clean and honest service to every client. 

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