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Contractor Bond FAQs
General questions
What are contractor bonds?
Contractor bonds are surety bonds required for licensing, bidding, public work, or project guarantees. They protect the public, project owners, and the people working on a job if a contractor does not meet required obligations.
Which contractor bond do I need?
A license bond is usually required by a state, city, or board before you can work. Bid, performance, payment, and maintenance bonds are tied to a specific project or contract, and the bid documents or contract say which ones you need.
How much do contractor bonds cost?
License bonds usually cost 1% to 10% of the bond amount per year. Performance bonds are generally 3% of the bond amount. Payment and maintenance bonds are usually included with the performance bond. Bid bonds are free.
Can I get a contractor license bond online the same day?
Yes. Most contractor license bonds are quoted and issued online the same day. Project bonds require underwriting and usually take one to three business days.
Will I need a credit check?
Credit affects your rate on most contractor bonds. License bonds are available to most applicants, and project bonds also weigh financials and experience.
Do contractor bonds protect my business?
No. A surety bond protects the party that requires it. If a valid claim is paid, the contractor is responsible for reimbursing the surety.
Contractor License Bond questions
What is a contractor license bond?
It is a surety bond that your state or city requires as a condition of holding a contractor license. It guarantees you will follow licensing law and gives customers and others a way to recover money if you do not.
How much does a contractor license bond cost?
Most applicants pay 1% to 10% of the bond amount each year. For example, a $15,000 bond usually costs between $150 and $1,500 a year, depending on credit and the state.
How fast can I get a contractor license bond?
Most applicants are approved the same day. The bond is issued after payment and you can file it with your licensing board right away.
Is a license bond the same as a performance bond?
No. A license bond is required to get and keep your license. A performance bond is tied to one project and guarantees you will finish it under the contract.
Do subcontractors need a license bond?
It depends on the state and the trade. Many states require licensed subcontractors to carry their own bond, even when they work under a general contractor.
Will bad credit stop me from getting bonded?
Most contractor license bonds are available regardless of credit. A lower credit score usually means a higher premium, not a denial.
What happens if a claim is filed against my bond?
The surety investigates. If the claim is valid, the surety pays it up to the bond amount and you reimburse the surety. Claims can affect your license and your future bond rates.
Do I have to renew my license bond every year?
Many bonds run for one year and renew with your license. Some states accept a continuous bond that stays active until it is cancelled. Check your board for its rule.
Bid Bond questions
What is a bid bond?
A bid bond guarantees that a contractor who wins a bid will sign the contract and provide the required bonds at the bid price. If the contractor does not, the surety pays the owner the difference up to the bond amount.
How much does a bid bond cost?
Nothing. Bid bonds are free. Approval still goes through underwriting, and the surety is typically also the one that will write your performance and payment bonds if you win.
How much is the bid bond amount?
The owner sets it, usually 5% to 10% of the bid and sometimes up to 20%. The amount is in the bid documents.
How long does it take to get a bid bond?
Many are approved in one to three business days. If you are new to bonding, allow extra time for financial review and apply before the bid date.
Can I get a bid bond with bad credit?
Sometimes. Underwriters look at credit, experience, and financials together. Options exist for contractors with limited credit, sometimes with added collateral on the larger bond.
Is a bid bond the same as a performance bond?
No. A bid bond covers the bidding stage. A performance bond covers completing the work after you win. See the performance bond page for details.
Do I need a bid bond for a private project?
Only if the owner requires it. Public owners almost always do. Private owners ask for them mostly on larger or higher risk projects.
Performance Bond questions
What is a performance bond?
A performance bond guarantees a contractor will complete a project under the contract. If the contractor defaults, the surety makes sure the project is finished or pays the owner up to the bond amount.
How much does a performance bond cost?
Generally 3% of the bond amount. A $50,000 performance bond costs about $1,500. The bond amount is on the bond form and is usually 100% of the contract price. Payment and maintenance bonds are usually included.
How much is the performance bond amount?
Usually 100% of the contract price. Some owners accept a lower percentage. The contract and bid documents state the requirement.
Are performance and payment bonds the same?
No, but they are usually issued together. A performance bond protects the owner from a failure to complete. A payment bond protects subcontractors and suppliers from nonpayment.
How long does it take to get a performance bond?
Typically one to three business days once underwriting has what it needs. New bonding relationships take longer than repeat accounts.
Can new contractors get a performance bond?
Yes. Smaller projects often qualify with personal credit and a basic financial statement. Larger bonds need stronger financials and experience.
What happens if I default on the project?
The owner can claim on the bond. The surety investigates and may complete the work, hire another contractor, or pay the owner. You are responsible for reimbursing the surety.
Payment Bond questions
What is a payment bond?
A payment bond guarantees a contractor will pay subcontractors, laborers, and suppliers on a project. Unpaid parties can claim against the bond if the contractor does not pay.
How much does a payment bond cost?
Usually nothing extra. Payment bonds are normally included with the performance bond, which is generally 3% of the bond amount. Final approval and pricing are subject to underwriting.
Who is protected by a payment bond?
Subcontractors, laborers, and suppliers on the project, and the owner, who is protected from payment claims. It does not protect the contractor.
Why can I not file a lien on a public project?
Mechanics liens generally cannot attach to public property. A payment bond gives unpaid parties a claim to pursue in place of a lien.
How long do claimants have to file?
It depends on the law that applies. For federal Miller Act projects, parties without a direct contract with the prime contractor give notice within 90 days and sue within one year. State laws set their own deadlines.
Do I need a payment bond and a performance bond?
Usually yes. Public owners that require one normally require both, and sureties typically issue them together.
Can I get a payment bond without a long track record?
Yes, on smaller projects with solid personal credit. Larger bond amounts need financial statements and project experience.
Maintenance Bond questions
What is a maintenance bond?
A maintenance bond guarantees a contractor will repair defects in materials or workmanship for a set period after a project is completed. The surety pays for repairs if the contractor does not make them.
How long does a maintenance bond last?
Most last one to two years from final acceptance of the work. The contract sets the period.
How much does a maintenance bond cost?
Usually nothing extra. Maintenance bonds are normally included with the performance bond, which is generally 3% of the bond amount. Final approval and pricing are subject to underwriting.
How much is a maintenance bond amount?
Often 10% of the contract price. Some owners require a higher percentage.
What defects does a maintenance bond cover?
Defects in materials, installation, and workmanship that appear during the warranty period. Normal wear and owner misuse are not covered.
Is a maintenance bond the same as a warranty bond?
Yes. The terms are used interchangeably, along with defect bond.
Do I still need a maintenance bond if I have a performance bond?
Only if the contract requires it or the owner needs a longer period than your performance bond includes. Ask your surety whether the first year is already covered.