What Is a Contractor’s Bond and Why Should I Have One?

Do you know what a contractor’s bond is?

If you are planning to hire a contractor to remodel your home, then you should!

Here at GreatBuildz, a free service that connects homeowners in Los Angeles, Orange County, Ventura & San Diego with reliable general contractors, people ask us all the time about project details like contractor’s bonds – here is what you should know.

Having work done in your home can be quite an intrusive, arduous process. There is an endless assortment of things to plan for – especially before any work even begins. Everything from where to store furniture, to the color of the new cabinets. Once the work begins, you can essentially prepare yourself for your home to sink into utter chaos.

As you go through the process of picking a contractor, there are many factors to consider. It’s imperative that they are licensed and insured. An active license proves to the state (and to you!) that they are capable of performing the task at hand. When reviewing your contractor’s insurance, make him be specific about what it covers. You want to ensure that if anything goes wrong during the remodel, it won’t lead to a claim against your policy.

Another wise decision is to require the contractor you hire to have a contractor’s bond. While it is important to have a good rapport with your contractor, this is not what I mean when I say ‘Contractor’s Bond’. This lesser-known term, also known as a contract bond, can provide some much-needed peace of mind before your project begins.

Contractor Homeowner Bond

A contractor’s bond is a type of agreement backed by a surety – usually a bank or an insurance company. This agreement is between three parties:

1) the Principal (contractor)

2) the Obligee (homeowner)

3) the Surety (backer)

This bond can contain any details you and the contractor agree to. For the most part, there are two types of bonds when it comes to residential remodeling.

Performance Bond

The performance bond states that if the contractor fails to finish the job, the surety will pay to have the work finished. The surety will also reimburse you for any damages you had incurred as a result.

Need an example?

Let’s say your contractor starts your project and things are progressing smoothly. So well in fact that you are beginning to visualize the beautiful room you could only dream of merely weeks before.

Suddenly, he calls you one morning to inform you that he won’t be able to finish the job he started.

He tells you that just last night, he realized that over half his life had passed him by. He never got to fulfill his childhood dream of becoming a matador! As your world is turning upside-down because your beautiful home is still torn apart, he is boarding a red-eye flight for Spain.

Fortunately, you made sure to hire a contractor who was bonded. You make a call to the office of the surety and inform them that the contractor has broken the provisions of the bond.

And….. they get you a new contractor to finish the work, covering the costs to the limit of the bond for you. Sounds pretty good, right? Of course, aside from the extra time added to the chaos in your home – but how could you have known the guy you hired was a wannabe matador? At least you planned ahead and covered yourself with the contractor’s bond.

Labor and Materials Bond

Contractor Bond

The labor and materials bond, also known as a payment bond, exists to protect sub-contractors. If the same crazy matador scenario happens, the surety will compensate any sub-contractors, laborers, and suppliers for the job. This is also very important for the homeowner. According to the contract, you would generally still be responsible for compensating any laborers. If not, they could come after and sue you!

As you could imagine, it’s pretty rare for a contractor to wake up from dreams and decide to become a matador. Nonetheless, it is always a safe decision to only hire bonded contractors. If the contractor you hire goes through the process of purchasing a contractor’s bond, you can trust he’ll be responsible enough to finish the job. Generally speaking, the only reason a contractor would default on his bond would be some kind of illness or health issue.

It is safe to say that a good contractor would plan ahead as well. If anything happens during your project, he should take the initiative to have a backup contractor ready and able to take over. You see, the contractor definitely doesn’t want to default on the bond. He could pay up to ten percent of the value of the bond to secure it. (The percentage is based on his credit history)

Thus, it isn’t in his best interest to have you make a claim on the bond. During a home renovation, you’ll want to reduce any possible stressors in your life. By ensuring your contractor is bonded, it will provide you peace of mind – one less thing to worry about!

As with anything in life, we never know exactly what kind of unbridled chaos awaits at every turn. Even when you’ve mapped out the perfect route to a trouble-free experience, crazy things can always happen.

In those times, it’s comforting to know you have, at the very least, taken steps to ensure that the bad isn’t going to get worse. That thought may just make your day a little less worrisome.

When it comes to finding a trustworthy contractor for any remodeling project, you shouldn’t have to go it alone – GreatBuildz can help simplify your renovation experience.


GreatBuildz is a free service that connects homeowners in Los Angeles, Orange County, Ventura & San Diego with reliable, thoroughly screened general contractors and provides project support from start to finish.


Call now (818.317.3567) to chat with a real person about your next renovation project or visit our website for more information: www.greatbuildz.com

What is GreatBuildz? We Make It Easy To Find a Great Contractor

Hi, we're Paul and Jon - Co-Founders of GreatBuildz. We believe everyone deserves to find a great contractor, have a stress-free renovation, and enjoy their beautiful new space. There are so many contractors out there and it's often hard to tell the good from the bad... until it's too late. We started our company to help simplify your contractor search and help you have a stress-free renovation experience. We're always available to help, no matter where you are in the process. Click here to learn more about our story.

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