If you're a contractor, you'll want to be aware of the different types of bonds you may need to buy to operate in your state. Having the right bonds enable your company to win trust, become more reputable, and win more government contracts. This guide to buying bonds explains the importance and process of getting a bond as a contractor.
What Is a Contractor Bond?
A contractor bond is a form of surety to your customers (project owners) that your company is licensed to offer services to the public. It also guarantees your clients that you'll adhere to relevant state laws while executing projects.
Why You May Need a Contractor Bond
If you supply any kind of service or product, you may need a bond for two main reasons:
- To get government business-Federal or state agencies often require contractors working on their projects to be bonded.
- Licensing requirement-You may need a surety bond to qualify for a license from the State Department of Licensing or other government agencies.
How Does a Contractor Bond Work
When bidding for contract work in King County, WA, you'll need to put up a contract bond. Generally, third-party agencies or brokers can help you get bonded through a surety company.Bonding guarantees the government agency owning the project that you have the resources and financial capacity to fully satisfy project specifications while complying with relevant regulations. In large projects, bonding can also provide assurance that suppliers and subcontractors will be paid.A contractor bond typically involves three parties:
- The project owner or obligee (such as city or state)
- The contractor
- The surety provider guaranteeing the bond
In case you're unable to complete the project according to the terms of the contract, you and your surety company are liable for any loss incurred by the obligee.
Types of Contractor Bonds
Surety companies provide different types of contractor bonds, including:
- Bid bond-Government agencies require contractors to have bid bonds to enhance bidding competitiveness. When you're vying for contract work, this bond protects the agency in question in case you withdraw from the contract after your bid has won. It can serve as a surety if you fail to put up a performance bond.
- Performance bond-After winning a contract and agreeing to start working on the project, you'll need to place a performance bond. This type of bond guarantees the project owner that they won't suffer any financial loss if your work is subpar or otherwise fails to satisfy the terms of the contract.
- Payment bond- This type of bond is required in most large projects. It guarantees payment for labor and materials supplied. Generally, it protects workers, subcontractors, and raw-material suppliers involved in the project against financial loss.
- General contractor licensing bond-A contractor needs to buy this surety bond to guarantee that they'll adhere to ethical business practices, building codes, and other regulations stipulated by the city, state, or other government authority. Also, the bond helps you qualify for a license or permit issued by the relevant authority. Having this bond helps to safeguard project owners' interests.
- Specialty contractor licensing bond-You'll need this bond to be licensed or permitted to operate as a specialty contractor. It'll assure your customers that you'll complete projects in your area of specialization to the highest standards specified.
Other types of contractor bonds include:
- Notary bonds
- Cosmetology bonds
- Vehicle dealership bonds
Bonding is an important licensing requirement for contractors in many states. You need it to get government contracts. If you need help finding the right types of bonds in King County, WA, contact the team at Humble & Davenport Insurance right away. We'll help you secure the right bond for your contracting needs and objectives.
