Category Archives: bond

arizona contractor license

Demystifying Contractor Bonds: FAQs

With a market share of approximately 10%, the United States has the second largest construction market in the world. The construction industry is so massive that regulating it is a formidable task. Regulatory laws vary around the United States, but contractor license bonding is a national process that can be a little confusing.

As we mentioned, contractor bonding differs per state. We work specifically with the Arizona Registrar of Contractors and the Nevada State Contractors Board, but across the country, the intent behind contractor bonding is largely the same.

Let’s unpack some frequently asked questions.

What Is A Contractor Bond?

A contractor bond acts as an agreement between three parties. Between the contractor, the entities the contractor is completing work for, and the legislative body issuing the bond. The agreement ensures accountability between all parties. It’s a mark of professional confidence for contractors. It protects the public, as well. Should a bonded contractor’s work be below the standards or against regulations set forth by the bond, the bonding agency pays for any damages incurred. The contractor, in turn, owes that money back to the issuing agency.

Why Should I Become Bonded?

Becoming bonded is a mark of quality in the contracting profession. You’re publicly informing potential customers that you’re confident in the quality of work you’ll perform for them. There have been horror stories of people being ripped off by contractors who weren’t bonded and there being little to no recompense for the ripped off parties. People look for bonded contractors because it’s a safety net in the case of poor building practices.

Which Bond Should I Opt For?

An Arizona contractor license will look different from other states. Even within the state, there are various types of different contractor bonds and values that really have to do with the type of contracting work you’ll be doing. For instance, the Arizona contractor licenses are based on the scope and size of work, specialty versus general contracting, and residential/commercial contracting. Which you opt for depends entirely on what work you do as a contractor.

Arizona contractor bonds and Nevada contractor bonds may have different hoops to jump through, but now you can see why becoming bonded would be beneficial for your contracting business. It ensures professional service and provides coverage to the people who hire contractors that perform work that breaks the bond agreement.

Contractor’s License Surety Bonds: AZ, NV, CA

Understanding Contractor’s License Surety Bonds

Contractor License Bonds are a type of Surety Bond, and are typically required from a variety of businesses, such as Contractors, as a pre-licensing requirement.  California, Arizona and Nevada Contractors are all required to post Contractor’s License Surety Bonds or a cash deposit. This type of bond is a guarantee that the contractor will satisfactorily complete all work for the owner according to the contract, and that all construction costs be paid. This is a three party agreement between the Surety Company (Guarantor), the Contractor (Principal) and the Owner (Obligee, such as in this case, the Contractors Board).

Each State Contractor Licensing Board has their own specific bond form and amounts required. Nevada, California and Arizona Contractor’s License Surety Bond requirements can be found using these links: Nevada: Nevada State Contractors Board; California: Contractors State License Board; and Arizona: Arizona Registrar of Contractors.

Contractors Exam Center is ready to help you acquire your bond. You can start your application here.

Is a Contractor’s License Surety Bond an Insurance Policy?

Contractor License Surety Bonds are not insurance. They do not protect the Contractor. The Contractor, who defaults, will be responsible pay back any money spent to complete the project.  Bonds function as a credit guarantee to the owner.

How much do Contractor’s License Surety Bonds cost?

Most contractors purchase a Contractor’s License Surety Bond in lieu of putting up a large cash deposit for a long period of time. For example, if the Nevada State Contractors Board requires a $10,000.00 bond, they would require a cashier’s check for $10,000.00 and a biennial fee of $200.00. If a Contractor opted to purchase a bond instead, the Surety Company would charge a premium of the bond amount which usually paid annually.  You can see bond rates here.

An important factor in determining premium is credit score based, however, some are instant issue. As a premium example from above, a $10,000.00 Nevada Contractors License with good credit could cost an experienced contractor approximately $300.00 annually, and discounts are offered in multi years.  Most Nevada Contractor License Surety Bonds $2,000.00 and under are instant issue, as are most Arizona Contractor License Commercial Surety Bonds.

Other Types of Surety Bonds

After a Contractor is licensed, they may be asked for additional bonding for public works, or large construction projects. These are called Contract Bonds, which are different than a Contractor’s License Surety Bond and include bid, payment and performance bonds. These guarantee the Contractor fulfills his contractual agreement as promised and that subcontractors are paid.

Contractors Exam Center is a great source to discuss these needs with you after licensing, as well as Liability Insurance and Workers Compensation. We can be reached at Contact Us – Contractors Exam Center – Arizona and Nevada Contractor’s License.   Next month we will discuss Liability and Workers Compensation in more detail.