How Contractor Bonding Protects You

If you’re in the market for a contractor, you’ve probably already heard or seen the holy trinity of contractor credentials: “licensed, bonded, and insured.” Licensure and insurance are fairly straightforward, but what about bonding? What is it, and how does it work? The answer is fairly straightforward.

A bond is basically a contractors insurance policy. A bonded contractor is paying a surety company to provide financial security to their customers in the event of any unexpected expenses incurred by the contractor. The bond funds can be turned over to “make good” on shoddy work, satisfy unpaid subcontractors or suppliers, or used to repair damage.

While this is broadly similar to the role a contractor’s insurance plays, a bond typically has a much wider scope. The bond is intended to protect you from financial harm if the contractor finishes his work in any way that is illegal, unethical, or inappropriate. The most common time for a bond to be forfeit is when a contractor fails to complete his work, and it’s an excellent example of the bond’s purpose.

Contractor bonds protect you from the long-term impact of corner-cutting by an unscrupulous contractor. For example, if you wanted to build an extension on your house, the work would need to be permitted and possibly approved by your local building commission. Even though your contractor is supposed to know this and handle all the appropriate paperwork, your particular contractor is eager to pocket your money and finishes your extension without ever contacting the city. You would be subject to all sorts of penalties (especially if the extension breaks local regulations) which could cost you a great deal. The contractor’s bond will ease you through these expenses, from paying off fines to rebuilding to comply with the rules.

As you can see, bonds have a simple yet extremely important role to play in the construction industry. Pay attention to all three parts of the credential trinity and confirm any contractor is properly bonded before you hire him.…