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DefinitionWhat Is a Contractor Bond?

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What is a contractor bond?

A contractor bond, often referred to as a contractor license bond, is a form of surety bond specific to the construction industry. These bonds are required by state and local licensing authorities and must be obtained before a contractor can become licensed to operate legally.

Larger projects often require contractors to acquire a construction bond like a performance, payment, or bid bond.

How to determine which bond you need

Need a bond to complete a contract for a government entity? If so, you need a construction bond.

If you need a bond for general work in a state or local area and it’s not tied to a specific project or contract, you need a contractor license bond.

What is a contractor bond for?

A contractor bond is a financial contract and guarantee that the contractor will perform all work in accordance with applicable rules, regulations, and guidelines.

Regardless of whether you need a bond for a license or for a construction project bond, there are always three parties involved.

  • Obligee

    • The obligee will be the project owner or government entity that requires the bond coverage for projects or work performance. The obligee sets the terms of the bond, including the bond amount and what stipulations the principal must adhere to.

  • Principal

    • The principal refers to the person who must obtain the contractor bond. This will typically be the contractor in charge of the work to be performed.

  • Surety

    • The surety company financially backs the bond, allowing for money to be paid out in the event of wrongdoing or malpractice by the principal. However, the surety must be reimbursed in full by the principal if any money is paid out.

      • NOTE: connects customers to numerous surety companies to find the best possible rates for their bonds.

How does a contractor bond work?

When a principal obtains a contractor bond, the surety company that issues the bond is financially backing the principal. In the event that there is a verified claim against the principal and the principal’s contractor bond, the surety company will pay out any money to cover the claim up to the bond’s full amount. However, the principal must reimburse the surety in full for any funds paid out.

A contractor bond guarantees the obligee that the principal will act in accordance with all applicable rules, regulations, and laws governing the principal’s industry and work. If the principal fails to comply with these terms and practices or is negligent, resulting in harm to a consumer, the financial responsibility will rest on the principal and not the obligee.

The advantage of working with works by connecting principals with multiple surety companies so that the best possible price for a contractor bond is found. Our experts work hard to ensure you receive the best possible quote as quickly as possible.

Other Types of Construction Bonds

Bid Bonds

  • Bid bonds are required when contractors submit bid proposals for building projects. Bid bonds reassure developers that your bid proposal is serious and the contractor has the financials and credentials necessary to perform all necessary work.

Payment Bonds

  • Payment bonds guarantee the payment of services for all employees working on a project in the event that a lead contractor goes bankrupt while the project is ongoing.

Performance Bonds

  • Performance bonds function as a guarantee that any work being done will be in accordance with all contractual terms. If contractors do not adhere to the contractual terms, project developers can make a claim on the performance bond to obtain funds to have another contractor finish the work.


Need more than one type of bond listed here? is experienced in issuing a variety of contractor-specific bonds. Call us at 1 (800) 308-4358 from 7 AM to 7 PM, Monday through Friday, to discuss your bond needs!