In previous posts, we have talked about what bonds are and why bonds, as a general rule, are important. Today we wanted to talk a little bit more about license bonds and why you should have one if you plan to work in Arizona.

What is a bond? How is it different from insurance?

A bond is a guarantee from the contractor regarding the work they will do. It often works like a prepaid savings account with a bond company instead of a bank. There are different types of bonds that cover different aspects of a construction project. Performance bonds, for example, ensure a contractor performs the work according to contract. Payment bonds make sure people hired by the contractor to help do the work get paid.

This is different from insurance because insurance companies pay out money on claims (after they investigate, of course). Depending on the type of bond and situation, the bond company might pay out money, or they may be in the position of hiring someone else to complete the work.

What is a license bond?

A license bond is a guarantee that a contractor will do their work up to licensing standards, and any subcontractors they hire will do the same. Usually, it also guarantees that the contractor will pay the hired subcontractors in a timely fashion. Many states require bonds in order to receive licensing.

Is it required in Arizona?

Yes. In Arizona, a contractor is required to have a bond in order to get a license. You will have to submit bond information in your application for registration. The kind of bond (cash or surety) does not matter. There are required bond amounts, but those depend on what type of contractor you are and how much you expect to make in a year before you pay anyone anything - including subcontractors. The Arizona Registrar of Contractors has that information posted on their website.

Have any other questions about bonds? Be sure to ask us here.