License Bonds

What is Bonding?

It is a guarantee of correct performance of an obligation. That obligation may arise out of a contractual relationship, or it may exist because of a statute or ordinance governing the principal’s conduct.

Does Craft Guard Offer Contractor License Bonds?

Yes. We have several excellent sources for contractor license bonds for either experienced contractors needing to renew their license or new contractors just getting licensed.

What is a Contractor License Bond?

A Contractor’s License Bond is required by many states to maintain an issuance of an active license, reactivation of a license, and for the maintenance of an actively renewed license. License bonds are designed to protect consumers who may be damaged as a result of defective construction or other license law violations, and for the benefit of employees who have not been paid.

What is a Bid Bond?

A bond required of a contractor submitting the lowest bid on a project. If the contractor then refuses to undertake the project, the bid bond assures that the developer will be paid the difference between the lowest bid and next lowest bid. The bid bond encourages contractors to make serious bids and live up to their obligations.

What is a Performance Bond?

A bond issued by an insurance company to guarantee satisfactory completion of a project by a contractor. For example, a contractor may issue a bond to a client for whom a building is being constructed. If the contractor fails to construct the building according to the specifications laid out by the contract, the client is guaranteed compensation for any monetary loss. A Performance Bond guarantees the faithful performance of the contract and payment (payment bond) of materials and labor by the contractor to all subcontractors and material suppliers. The bond is submitted by the winning bidder upon award of the contract. The Performance & Payment Bond are typically issued together, as they are so closely related.

What is a Payment Bond?

Guarantees payment to laborers, suppliers, and subcontractors in the event of the contractor defaulting. Typically, a payment bond is issued with the performance bond, termed a “Performance & Payment Bond”.

How Do I Obtain a Bid Bond or Performance Bond?

The process of obtaining a surety bond is very similar to obtaining a bank loan. Call Craft Guard today, and we can walk you through the process which will save you time and money!

How Much Does a Surety Bond Cost?

Surety bond premiums vary from one surety to another but can range from one-half of one percent to two percent of the contract amount, depending on the size, type, and duration of the project and the contractor. In many cases, performance bonds incorporate payment bonds and maintenance bonds. When bonds are specified in the contract documents, it is the contractor’s responsibility to obtain the bonds. The contractor generally includes the bond premium amount in the bid and the premium generally is payable upon execution of the bond. If the contract amount changes, the premium will be adjusted for the change in contract price. Payment and performance bonds typically are priced based on the value of the contract being bonded, not necessarily on the size of the bond. Commercial bonding has a greater range of pricing; high risk programs have a high premium and 10% collateral.

How Do Surety Bonds Differ from Insurance?

With insurance, the insurance company indemnifies the insured against loss. As an example, if the insured incurs a loss by fire, and has purchased the appropriate insurance, the insurance company will reimburse the insured for their loss up to the insurance policy limit.

With a bond, the insurance company (Surety) will reimburse a third party (Obligee) for the loss caused to them by the Principal. In the event the Surety is required to pay the Obligee on behalf of the Principal, the Principal is required to reimburse the Surety. A Surety is essentially extending credit to the Principal. The Surety is not insuring the Principal against loss.

With a bond, the insurance company (Surety) will reimburse a third party (Obligee) for the loss caused to them by the Principal. In the event the Surety is required to pay the Obligee on behalf of the Principal, the Principal is required to reimburse the Surety. A Surety is essentially extending credit to the Principal. The Surety is not insuring the Principal against loss.