A surety bond is a legally binding agreement between the obligee (person or entity that orders the work), the principal (the contractor) and the surety (bonding company). The surety bond guarantees to the obligee that the principal will carry out his or her performance and payment obligations according to the agreement. The bond is put in place in order to protect the public and the party requiring the bond.

In the case of contractors, a contract bond guarantees that a construction project is finished in accordance with federal and state rules as well as the terms in the construction contract. Bid, performance, payment, and supply bonds all are included the category of contract bonds.

Contract bonds serve to protect the government (when it is awarding the contract) as well as parties who work with contractors, such as suppliers, laborers, and subcontractors.

The Arizona Registrar of Contractors requires that residential contractors obtain a contractor's bond when applying for a license; for estimated gross income under $750,000 the bond amount is $9,000 and for income estimated to be over $750,000 the bond amount is $15,000. Approximate costs for these bonds, based on good credit, is $270-$540 for $9,000 in coverage and $450-$900 for $15,000 in coverage.

Residential contractors are also required to provide a consumer protection bond. This coverage may be in the form of a surety bond or cash deposit in the amount of $20,000.00, or payment into the Residential Contractors' Recovery Fund ($185 a Year). If purchased through a surety company, this bond could cost between $1500 and $3000. Consumer protection bonds cover the consumer in case of incomplete or incorrect work.

We can provide you with more information and answer your questions about bonding. Give us a call today.