General Contractor Bonds: What They Are and Why You Need Them

10 October 2018

A contractor bond serves as a safety measure that protects both parties: the contractor and the investor. Simply put it’s a form of surety bond that guarantees the safety and ethical responsibility of a contractor and their client. It ensures all parties from financial risk. A contractor licensed bond is necessary in all 50 states in order to become a licensed contractor.

General contractor bonds are a complex necessity for any contractor. If you’re looking for more information, here’s what contractor bonds are and why you need them.

What Is a General Contractor Bond?

A general contractor license bond is crucial for keeping all parties involved in a construction project safe from financial risk. Even though it is a special type of surety bond, a general contractor bond still serves the same purpose as other types, which is to legally protect those who participate in a project from other parties’ expensive or unethical business moves.

In order to explain what general contractor bonds are and how they work, we first need to define the umbrella term used for all types of bonds – the surety bond. In short, a surety bond is a pre-licensing requirement needed for almost every type of business venture, which guarantees that the bonded party will act in accordance with the rules of their industry, the law, and moral principles.

Essentially, a surety bond is a contract signed by all included parties:

  • An obligee
  • A principal
  • A surety

Upon signing this contract, a principal makes a legal guarantee that they will deliver upon their promises to an obligee. A surety is a bonding company that acts as a third party, supervises the signing of a contract, and underwrites the bond. Simply put, the principal is the contractor business and the obligee is its client. A surety bond serves to prevent businesses from defrauding their clients.

Why Do You Need a Contractor Bond?

In the context of the construction industry, these bonds are made between a contractor (a principal) and an investor in a construction project (an obligee). A contractor license bond is a legal requirement for becoming a contractor in almost every country, as it makes sure that both parties oblige to the rules of their previous business agreement. For more information, contact a trustworthy bonding company.

If you’re planning to become a contractor in your state, a contractor bond will enable you to execute construction projects without putting your company’s reputation in jeopardy. In many countries, you won’t be able to obtain a license without a general contractor bond. It’s not only an essential requirement for practicing your profession, but also a safety measure that establishes your integrity.

For more information on general contractor bonds, contact the expert contractors at Focus. We’re happy to answer any questions you have about general contractor bonds.

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