A contractor bond is a three-party guarantee: a surety promises an obligee (a licensing board, owner, or public agency) that you, the contractor, will meet an obligation. If you do not, the surety pays the claim and you repay the surety. Common types are license and permit bonds for compliance and bid, performance, and payment bonds for contracts.
How a bond differs from insurance
This is the point contractors most often misunderstand. Insurance protects you against your own losses. A bond protects a third party against your failure to perform, and if the surety pays a claim, you are obligated to pay the surety back. A bond is closer to credit than to insurance: the surety underwrites your finances, experience, and credit to decide whether, and at what rate, to back you.
License and permit bonds
Many states and municipalities require a license or permit bond before you can be licensed or pull permits. It guarantees that you will operate within the rules and pay valid claims if you do not. Amounts and requirements vary by state and license type and must be verified with the licensing board. These are usually straightforward to obtain and are a routine cost of being a licensed contractor.
Bid, performance, and payment bonds
Contract bonds come into play on larger and public projects. A bid bond guarantees you will honor your bid and enter the contract. A performance bond guarantees you will complete the work as agreed. A payment bond guarantees you will pay your subs and suppliers. Public works frequently require performance and payment bonds, and qualifying depends on your financial strength and track record, which the surety reviews.
How we handle it
We identify which bond a license, permit, or contract actually requires, so you are not buying the wrong thing. We place license and permit bonds quickly, and we work with sureties on bid, performance, and payment bonds, helping you present your financials and experience to qualify. And we keep your bonds coordinated with your insurance so your contract obligations are fully met.
