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What is a Contractor's Bond?

Mary McMahon
Updated: May 17, 2024

A contractor's bond is a financial assurance that a contractor will complete a job to a client's satisfaction. If a contractor fails to complete a job as expected, the agency that issued the bond will provide a pay out to compensate. In many regions of the world, contractors must be bonded in order to obtain a license, and consumers should always take care to use the services of a bonded and licensed contractor to ensure that work will be completed to their satisfaction.

Bonds provide financial protection in the event that a particular job is not performed as desired. If a contractor walks off a job or fails to complete it, the bond would cover this. It also covers things like unpaid suppliers or subcontractors, damage to the property caused by the construction, and lost or stolen materials from the site.

Contractors can purchase a bond from a surety company. He or she will be required to pay premiums to keep the bond current, with the amount of the premiums varying, depending on the contractor's history and the amount of the bond. If someone wants to make a claim on a bond, he or she would contact the surety company and provide evidence to back up the claim, such as proof that a contractor had walked off a job or ordered and used materials without paying for them.

For contractors, a bond is a valuable tool, because it assures clients that they will be protected financially in the event that there is a problem with the job. Clients prefer to work with contractors who hold bonds as a form of financial assurance, and subcontractors and suppliers may like to see proof of one before agreeing to work on a job. Construction can get very costly, especially if things go wrong, making a contractor's bond a critical tool to have. Contractors may also be asked to take out bonds for particular big projects, such as government works projects.

People can find out whether or not a contractor is bonded by asking to see the bond number and certification proving that he or she has one. In regions where contractors must be bonded to get a license, evidence that the bond and license are both current should be requested to confirm that the contractor is in good standing. This information will also be useful to have in the event that a claim needs to be made.

About Mechanics is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a About Mechanics researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By Ivan83 — On May 28, 2011

I work as a contractor and having a bond is almost as important as having a hammer. First of all, it is an important assurance for the client. They know for sure that mistakes made by the contractor will not affect them, or not affect them severely. It will still be a headache to get the project finished, but at least they are not out a lot of money.

Contractor bonds are also important for the contractor because they ensure that work will be finished even if your contracting company cannot finish it. Sometimes jobs fall apart for unpredictable and unavoidable reasons. It is nice to know that instead of leaving a half built structure that will either get torn down or fall into disrepair, someone will come along and finish the work. You want to know that the work you put in was not all for nothing.

By summing — On May 26, 2011

@chivebasil - The fault in this circumstance might fall on the developer. If they ran out of money and canceled their contract with the home builder a contractor's bond would not apply because the developer elected to halt construction.

Modern construction projects can be so huge and complicated that it is sometimes difficult to know who is actually calling the shots and why certain decisions are made. If a project does not get completed it is not always the contractors fault

By chivebasil — On May 24, 2011

A few miles from my house there is a subdivision that got started right before the housing bubble burst. There are roads, sewers and a few houses, but mostly it is a big expanse of land where development was started but never finished. I guess this would be an instance where a contractors bond would help. I'm sure a lot of money was tied up in the development and for now it hasn't returned a single dollar.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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