Contractors are required to obtain a Contractor Bond as a form of financial guarantee to protect clients and the public. The bond ensures contractors will fulfill their legal and contractual obligations on projects. Whether you’re new to the industry or want to understand your responsibilities, this guide will review what a Contractor Bond is, why it’s required in most states, and how it works to safeguard everyone involved.

You’ll also learn about the different types of Contractor Bonds—such as License Bonds, Bid Bonds, and Performance and Payment bonds—their specific purposes, and the typical requirements you’ll need to meet. We’ll also guide you through the process of obtaining a Contractor Bond, including how to identify state-specific requirements and select a reputable provider, so that you can operate your business with confidence and compliance.

How Does a Contractor Bond Work?

A Contractor Bond serves as a three-party agreement that guarantees a contractor will fulfill its contractual obligations. The three parties to a bond are:

• Principal: The person or entity that purchases the bond. Typically, this is the general contractor or subcontractor.
• Surety company: The company that provides the bond and is responsible for ensuring the contract’s completion in the event the contractor fails to perform.
• Obligee: Individual or entity protected by the bond. Typically, this is the property owner or a public agency that requires the bond.

If the principal fails to fulfill his or her obligations and financial harm results, the public or government can file a claim against the bond. The surety company pays the claim up to the bond’s limit, and then the principal must repay the surety company for any losses, including costs and fees. 

A surety company typically underwrites contractor bonds based on a contractor’s financial health, the type of work, and his or her past job records.

Who Needs a Contractor Bond?

General contractors, electricians, plumbers, drywallers, roofers, landscapers, and other specialty trades require a Contractor Bond to obtain their licenses, as mandated by specific state and local regulations.

The Importance of Contractor Bonds

Contractor Bonds protect the project owner or public agency if the contractor fails to fulfill their legal or contractual obligations. Unlike insurance, bonds do not protect the contractor; they ensure that clients have a way to recover damages.

Bonds enhance your credibility, demonstrate reliability to clients, can be a requirement for winning bids on certain projects, and provide financial security if project obligations are not met. Bonds also establish trust and accountability within the construction industry, safeguarding all parties involved. 

Types of Contractor Bonds

Contractor Bonds play a crucial role in the construction industry by protecting project owners, contractors, and the public from financial risk. Understanding the different types of contractor bonds is essential when seeking to maintain compliance, establish trust, and secure more projects.

License and Permit Bonds

A government or municipal entity requires a construction business to obtain a License and Permit Bond to ensure compliance with local laws and regulations. For example, a License Bond is a vital requirement for contractors operating in California, with the process regulated by the Contractors State License Board (CSLB). In Arizona, the Arizona Registrar of Contractors (AZ ROC) regulates the state’s contractors and ensures that bonds are properly in place.

Bid Bonds

Project owners require a Bid Bond to ensure contractors will stand by their bids and sign a contract if awarded the job. The surety company requires specific information to issue a Bid Bond, including the business name, address, contact details, type of business, years of operation, and contractor license number, as well as project-related details such as the location, owner, and bid deadline. The contractor’s bid amount, previous bonding experience, personal background info, and a copy of the bid documents or request for proposal are also necessary to complete the application.

Performance and Payment Bonds

Once a contractor lands a job, typically, Performance and Payment bonds are requested by the property owner/developer or public agency. The Performance Bond guarantees the project will be completed as specified in the construction contract while the Payment Bond ensures that subcontractors and suppliers are paid for their work and materials. Payment Bonds are typically required for most public projects and are often required for commercial jobs as well.

There are other types of contract bonds, including maintenance, supply, and subdivision bonds.

Contractor Bond Requirements

Contractor Bond requirements vary by state, with most licensing boards and regulatory agencies sharing similar expectations.

General Contractor Bond Requirements

The following are typical General Contractor Bond requirements.

• Bond Amount: Each state sets its own bond amount, which depends on the project size, trade type, and location.
• State-Specific Rules: Some states require separate bonds for specialty contractors (e.g., electrical, plumbing), while others require higher amounts for general contractors or larger projects.
• Surety Approval: The contractor must obtain a bond through a licensed surety company, which evaluates the contractor’s financial stability and credit history before issuing the bond.
• Renewal Obligation: Contractor Bonds typically require renewal annually or at the time of license renewal. Failure to maintain an active bond can result in the suspension of your license.

Contractor Bond Requirements by State

Arizona

In Arizona, contractors are required to post a License Bond with the Arizona Registrar of Contractors. Bond amounts vary by license type: $15,000 is generally required for residential general contractors (projects ≥?$750,000), while $4,250 covers specialty residential licenses under $375,000. Commercial license bond amounts are based on filed gross receipts and range from $15,000 to $100,000.

California

The California Contractors State License Board mandates a $25,000 Contractor License Bond for all licensed general and specialty contractors. Additional bonds—including the Bond of a Qualifying Individual ($25,000), $100,000 LLC Worker Bonds, and Disciplinary Bonds—may also be required, depending on the license structure and disciplinary history. Surety companies will conduct a soft credit check during the underwriting process.

Nevada

In Nevada, contractor licensing is overseen by the State Contractors Board, and bond requirements vary depending on the license class. Typical Nevada License Bond amounts range from $1,000 to $500,000, though most fall between $10,000 and $50,000. Contractors licensed out of state may qualify for reciprocity from Arizona, California, or Utah but must still meet bonding requirements if working in Nevada.

Oregon

In Oregon, contractors are required to secure a License Bond through the Construction Contractors Board (CCB) as part of their registration process. In addition, contractors bidding on public works projects exceeding $100,000 must file a $30,000 public works bond before beginning a job to ensure compliance with prevailing wage laws and contractor obligations. Oregon does not allow out-of-state bonds to be transferred; contractors must meet the CCB bonding requirements independently.

Washington

Washington state requires general contractors to maintain a $30,000 Continuous Contractor’s Surety Bond and specialty contractors to carry a $15,000 bond. These bonds are filed through the Washington Department of Labor & Industries (L&I) when registering or renewing.

How to Get Bonded as a Contractor

The bond process typically involves applying through a licensed surety company, which reviews your financial history and business details before issuing the bond. Once approved, your bond provides a financial guarantee that you’ll follow state laws, building codes, and contractual obligations.

Steps to Obtain a Contractor Bond

• Make sure you know what you need. Identify your license class/trade and the bond type and amount your state or city requires. Review your licensing board’s rules.
• Gather your info. Legal business name/DBA, EIN, owner’s info, license/application number (if issued), business and (sometimes) personal financials, work history, and bank/contact details.
• Choose a licensed surety/bond agency for a quote. Work with an agency that has strong relationships with surety companies that underwrite Contractor Bonds in your state. Expect a soft credit check.
• Complete the application and indemnity. Fill out the surety’s bond application and sign the general indemnity agreement (standard for most bonds).
• Get the bond issued. Pay the premium; the surety prepares the bond on the correct state/agency form with seals/power of attorney. Verify that your exact legal name matches the one on your license application.
• File the bond. Submit the original (or e-file, if allowed) to the required authority (state board, city permit office, etc.). Keep copies for your records.
• Activate/maintain your license. Once on file, complete any remaining licensing steps. Maintain the bond in force by renewing on time, updating addresses/ownership, and adhering to board rules.

Choosing a Contractor Bond Provider

Work with a Contractor Bond provider that understands the construction industry and the bond requirements for licensing in your state and that collaborates with multiple insurance companies, providing you with the resources to find the best fit for your needs.

CCIS Bonds is a licensed construction bond and insurance agency with over 75,000+ licensed contractors. We work with several top-tier surety companies and make the bond process easy with an online form.

Note: Please note that bonds are subject to their terms and applicable statutory requirements. Coverage and protections are provided only as outlined in the bond language and in accordance with relevant state or federal laws.