You are here because a regulatory agency said you need a contractor bond. The first question you ask yourself is why the hell do I need a surety bond for my license, registration, certification, or permit? Second question, what does this bond even do?
We will answer these questions and more in our informative article below. Perhaps you do not have time to read why this red tape exists. Fair enough. You can just purchase the bond with Jet Insurance Company in minutes by clicking the button below.
Over 1,000 different state, county, and city agencies require contractor bonds across America. Jet has details on nearly all of these requirements that can be found on each bond’s individual write-up. Select your state to find more specific details about your bond.
Contractor License Bond limits range from $500 to $250,000. Most bonds are around $25,000. The city, county, or state requiring the bond will inform what bond amount is necessary to proceed with the license.
How Contractor Bond limits are determined varies, as seen in the chart below. Sometimes it is simply a specified dollar amount - or - based on multiple factors ranging from the type of work performed to the gross annual volume of business.
|Brunswick, OH||Certified contractor doing any work over $1,000 per job||$25,000|
|Mecklenburg County, NC||Permit amount set by County||Varies (min $2,000)|
|Mobile, AL||Any contractor business||$10,000|
|State of Arizona||Classification, type of work, gross annual volume||$4,250-100,000|
|State of California||Any contractor business||$15,000|
The bond limit is the maximum amount a Surety company can pay out toward a claim, but as you’ll soon learn, the bond does not cover contractors up to the bond’s limit—it is the limit set to protect contractor’s customers, vendors, and even the regulators from the contractor.
Jet’s price for the bond is going to be a small percentage of the bond limit. For the bond limit of $25,000 (which is about average), contractors can pay as low as $13 monthly to get their bond with Jet Insurance Company.
|Bond Type||Bond Limit||Monthly||Annual|
|Credit Based - Preferred Tier||$25,000||$15||150|
|Credit Based - Standard Tier||$25,000||$38||$375|
|Credit Based - Sub-Standard Tier||$25,000||$80||$800|
For a considerable number of the local license bonds that cities require, contractors can purchase the bond instantly online. No underwriting is required. Meaning the price is the same regardless of the contractor’s credit or experience.
Surety Underwriting Explained
It would be to just give everyone the same price, but additional risks exist for larger contractor bond requirements. Jet will utilize a variety of underwriting criteria to best assess the approval and premium of the surety bond. This includes, but is not limited to, personal credit, years of experience, classification, and location.
At Jet, these underwriting factors don’t increase the time to get a bond price. We still get a Contractor their License Bond within a couple of minutes online.
In the world of insurance and surety ‘underwriting’ is the term used to describe the utilization of an applicant's information to determine their price. Imagine a person with a perfect driving record versus someone with 3 speeding tickets, 2 at-fault collisions, and a DUI. Those two people will not pay the same insurance price and it's obvious why. The risk the insurance company will make a payout is much higher for the second example, therefore the insurance company must charge appropriately to account for the risk. Every driver could pay the same insurance premium into the same insurance pool to provide financial security for all. Not fair to the perfect driver.
When it comes to underwriting contractor bonds, the likelihood of a claim decreases as a contractor’s financial situation improves. This correlation between financial status and bond claim is the strongest underwriting factor the surety industry can use. The fastest, easiest, and most trustworthy method to verify financial strength is through a credit check. With Jet, a soft credit check online is performed which won’t affect the contractor’s credit rating.
At Jet, we strive to charge the appropriate premium amount for the risk present in our customers. If we charge too little we are soon out of business and will be leaving a steaming pile for various state insurance departments to deal with. Charge slightly too much and you are not our customer. We pride ourselves on having the lowest cost to you by constantly focusing on our underwriting standards, streamlined processes, and the elimination of middlemen agents and brokers.
Contractor License Bonds are just one tool that regulators use to protect the public from contractors, and we know that government entities love to say they are protecting the public.
A likely bond scenario Jet experiences goes like this: a contractor is accused of forgetting to install the correct cabinet knobs, the contractor claims they did the job as specified, and then refuses to amend the situation. The homeowner can go to small claims court which will cost them more time and effort than just getting the knobs themselves. Enter the Contractor License Bond. If the agency regulating the contractor has a bond requirement, the homeowner can call the surety company holding the bond and request restitution. The third-party surety company verifies the validity of the claim and makes prompt payment (if justified).
Let’s get into the various areas that the bond protects against. Please note that not all Contractor Bonds in the various cities, counties, and states contain the same safeguarding. The Contractor License Bond is for the:
These license bonds are tools used to provide a safeguard against “bad” contractors with all licensed contractors needing to purchase one. As mentioned before all types of insurance work in this manner, everyone pays into a pool that some benefit from. But in the case of surety bonds, the benefit is for the public and that is why it is not optional. Just be happy it is not a fund managed by the government.
What is the government's alternative to a surety bond? Simple, just collect the entire penalty sum (bond limit) upfront from the contractor, hold that money, and pay it out when they get a complaint or don’t receive their own fee. Jet Insurance Company’s role as a surety provider does three things to create a beneficial alternative to a cash deposit.
The easy thing to say is a contractor needs a License Bond, but each government agency has different ways to define who needs the surety bond.
Handymen are generally not required to hold a bond in certain cities, counties, or states. For example, in Brunswick, Ohio contractors do not need a license or a bond if they do not perform contracts over $1,000.
The contractor’s classification will affect if and how regulations apply. General contractors, plumbers, electricians, roofers, or swimming pool contractors sometimes get singled out with various licensing requirements and consequently need a surety bond.
Contractors may need to apply for a permit to be approved to do work in the municipality. At which point they get slapped with a bonding requirement. Permit Bonds may only be needed for a single project.
Generally, homeowners are not required to file a surety bond for work they perform on their own property. However, there is a thin line between working your own home and professionally flipping homes. There are cases of “homeowners” skirting around licensing and insurance requirements by claiming to work on their home. If caught, and we hope they do get caught, they are sure to be faced with penalties. For example, Nevada has specific laws surrounding the definition of when a homeowner is not really an owner.
If you guessed that you can purchase the Contractor Bond online, you nailed it! With Jet, the bond purchase takes moments.
Calling Jet at 855-296-2663 is just as effective to get the bond taken care of. Speak with a Jet professional—not a robot or receptionist.
For lower limit bonds (around $10,000), all the contractor needs to submit basic contact and payment information. Sometimes the bond amount will need to be declared.
For higher bond limits, the process still only takes a few minutes but a soft credit check will be necessary to get an approved rate—this isn’t a hard pull, so it won’t affect credit scores.
Within moments contractors will be able to choose the bond term and make payment. BAM, you got yourself a Contractor License Bond! The bond form and receipt of payment will be available for download immediately and also sent to your email after purchase.
Once your Contractor Bond has been purchased, you may wonder how it gets on file with the city, county, or state requiring the bond. Jet does their best to file the bond, whenever allowed. There are still some governing entities that require the physical bond form to be hand-filed or mailed in by the contractor (*insert heavy sigh here*).
Contractors must be aware of the regulatory agency’s specifications, whether it is a first-time or renewal certification, registration, or license, to avoid the contractor status being put in jeopardy.
Jet can assist you with any filing needs you may have as we have an extensive database on all contractor license requirements. At Jet, we are constantly lobbying these regulators to implement streamlined processes to eliminate bureaucratic hassle.
If a contractor wants to keep their license active, the Contractor License Bond also needs to be kept active by renewing it. The bond form will state if the bond is “continuous until cancelled” or if there is a “definitive cancellation date”. No need to stress about what that means, as both bond types need to be renewed by the contractor. Jet will send a reminder via email and standard mail so no one misses their bond renewal date.
For those who choose Jet’s monthly payment option, renewing the Contractor Bond is a thing of the past. The bond stays active with each recurring payment until cancellation is requested by the contractor.
Jet allows for bond cancellation at any time by emailing [email protected]. Jet will notify the regulatory agency. Often a cancellation period, anywhere from 10-120 days (typically 30) will extend liability to Jet Insurance Company as extended protection to the public.
Claims against a bond can come from the contractor’s customer, vendor, employee, or the regulator agency itself. The claim originates from the contractor’s failure to uphold the contract or construction code.
A claim can only be made against a Contractor License Bond within a given time period. This “bond tail'' is dependent on the state, county, or city laws. Typically there is a two-year window where the public can make a claim against a contractor. Sometimes there can be restrictions on this time frame depending on the nature of the claim. For example, in the State of Washington, a claim relating to labor, benefits, or contributions to employees can only be made one year after the incident, but all other claims have two years to be made.
Some examples of Contractor Bond claims include:
Bond Claim Process
While there is variance in how regulatory agencies handle complaints, there is a general process contractors can expect.
Typically a complaint is directed to the regulator. With any luck, the contractor has knowledge of this complaint and is not blindsided by a stern letter from the city, county, state, etc.
An investigation will be conducted by the regulator to determine if there has been any misconduct, wrongdoing, fraud, etc. Some states, counties, or cities will not perform any investigation and hand the complaint directly to Jet.
Based on the result of the regulator’s investigation there will be a determination of guilt. And if guilty, the regulator will order some form of restitution for the contractor to carry out.
The contractor at this point is to follow the regulator or court’s order. However, this is not always the case. You will notice, Jet Insurance Company has yet to enter this situation. It is at the point when a contractor is unable (lack of funds) or unwilling (overabundance of pride) to make recompense that the surety bond is needed.
Jet will always conduct its own investigation and if deemed valid, Jet will make payment to the damaged party.
A major distinction between Contractor License Bonds and other insurances occurs at this step. Where insurance protects against accidents, surety coverage goes much further and protects the public from not only accidents, but acts of deception, poor workmanship, and breach of contract. Responsibility for these actions remains with the contractor. Jet, along with all other surety companies, must be made whole and reimbursed by the contractor.
What best helps to understand this repayment concept, commonly known as indemnification, is the following: without the bond, there would be a cash deposit made by the contractor to the regulator to create the required financial safeguard. If the regulator makes payment to a complainant, then the contractor would need to reimburse the regulator to fill them back up to the predetermined cash amount required by law to be licensed.
Let’s say the contractor never repaid the surety. Each regulatory agency varies only slightly on what happens next. The surety company will notify the regulator the claim was not repaid and the government agency will suspend the license or registration.
Sometimes an incremental payment deal can be struck with Jet to keep working and make claim payments. This prevents a contractor business’s death sentence and keeps them active to make proper restitution.
Regulatory agencies love to create and enforce requirements on businesses, and contractors are not excluded. Certain project types or business entities tend to carry more risk, so additional coverage may be necessary.
Here are some other types of coverage that contractors may need, depending on location, type of work, number of employees, business type, and other factors:
Performance Bonds - Bid Bonds and Contract Bonds are required for specific projects. Similar to License Bonds they are for the benefit of the project owner, not the contractor. The difference being the project owner is requiring the bond, not a regulator (unless they are the project owner).
Take for example a large commercial job. The project owner will want to confirm the contractor is properly qualified before entering into a contract. Bid Bonds allow a contractor to bid on larger projects by having a surety company also verify a contractor’s ability to perform the project. If the contractor wins the bid, the Contract Bond guarantees the contractor will uphold the contract terms and complete the project.
Maintenance Bonds - Right on the heels of a Contractor Bond a Maintenance Bond may be required by a project owner. The bond gives protection for a predetermined time for any defects not addressed by the contractor following the completion of the project.
Wage and Welfare Bond - Local and national unions across the US require contractors wishing to hire union members to first secure a Union Bond, aka Wage and Welfare Bond.
Bond of Qualifying Individual - A Bond of Qualifying Individual may be needed for a contractor’s qualifier or an individual who has the expertise and qualifications to perform the work. The bond may be avoided if the qualifier has certain ownership of the contractor business (10% in California).
Disciplinary Bond - In some states if a contractor has failed to follow regulations or broken other rules they may be mandated to hold a Disciplinary Bond in addition to their LIcense Bond.
General Liability Insurance - Although it’s not mandatory in every state, commercial projects and sometimes even residential will require contractors to hold a liability policy that protects against property damage and bodily injury.
Workers’ Compensation Insurance - Requirements vary slightly from state to state, but if a contractor hires full-time employees they’ll likely need a Workers' Comp Policy to protect employees from injuries sustained while on the job.
Builders Risk - Much like a homeowner’s policy this coverage protects from damages to the structure that is under construction from fire, hail, wind, etc.
Inland Marine - Often referred to as tool coverage, an Inland Marine Policy provides protection for a contractor’s tools, equipment, and materials.
Not only do contractors working without a license harm the public, they also discredit the reputation of the construction community, leading to increased legislation and fees for current and future licensed contractors.
Nobody likes a snitch, but if an unlicensed contractor’s bid comes in lowest, then licensed contractors keeping quiet will not be in business for long. Reporting unlicensed contractors and illegal activity can be done at the following websites for the states below. Local municipalities can probably be reached with a simple call or email.
Arizona Registrar of Contractors: Unlicensed Contracting Tips Hotline
California Contractors State License Board: Report Unlicensed Activity
Nevada State Contractors Board: Report Unlicensed Contracting
Oregon Construction Contractors Board: Regulating the construction industry
Washington State Department of Labor & Industries: Report Contractor Fraud