Contractor Bond

What Is a Contractor Bond?

contractor bond

A contractor bond gives an obligee the right to impose certain requirements for a license in good standing. These requirements can include adherence to all local and state laws and regulations. If a contractor breaches his obligations under the bond, the obligee can file a claim against him. The principal also gains the right to operate in a particular state or municipality. Its purpose is to grant the principal a license to do business ethically. If that guarantee is broken, the bond carries a financial obligation on the principal.

Surety company

The Surety company that issues a contractor bond assesses the risk associated with a specific project by evaluating the firm’s financial stability, experience, management practices, and personal character. Based on these factors, the surety company will determine the premium. The bond rate will reflect the amount of risk and likelihood of the principal fulfilling its obligations. The lower the premium, the better. When choosing a surety company, it is important to remember that your bond is not a guarantee of payment; it is an assurance.


Construction performance bonds are now required for government projects. They prevent contractors from intentionally underbidding government projects, and from increasing their prices after the fact. The main benefit of these bonds is that they protect the government from contractors who hold the obligee to ransom. Without a bond, the obligee is stuck paying the contractor’s increased financial demands, or they can fire him and hire another. However, that poses the same problem for the new contractor.


The cost of a contractor bond will depend on the type of bond you need. Generally, bonds for bidders cost less than other bonds. There are several different types of bonds, each with its own unique characteristics. To get started, let’s look at the types of contractor bonds available. Listed below are some of the common types of bonds. All of them come with different costs. Here’s a quick overview of each type.


When a contractor fails to meet the requirements of a contract, it may result in the revocation of his or her license. If the contractor fails to meet the terms of the contract, the board may cancel his or her contractor bond. In such a case, the contractor must furnish an alternative bond or establish an equivalent cash deposit. A notice is sent to the contractor via certified mail and shall be addressed to his or her last known address in the office of the board.

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