How Do California Contractor Bonds Protect Home Owners


One of the ways to protect yourself when working with contractors is to demand a surety bond. If you’re an asset manager or a property owner, you can’t ignore the importance of contractor bonds. It doesn’t matter the type of construction project you are handling. If you want to protect yourself, your company and its shareholders, work with bonded contractors. These bonds will ensure that the contractor executes the project in question very well. However, if the contractor fails, the surety bond will cover the damages.


California Contractor Bonds?

A contractor bond is a guarantee agreement which the state of California requires every contractor to purchase. These bonds come from corporate sureties to contractors as proof that the principal (contractor) will carry out his/her obligations. It involves three parties-the the issuing company, the principal and the obligee. It is different from an insurance policy. Also, you can’t call it a letter of credit. Instead, you can call it an agreement that protects an obligation and also keeps a contractor in check. The reason being that he/she bears the cost of every unprofessional conduct in the course of carrying out his/her duties.  Once a contractor acquires the contractor bonds, he/she enters into a relationship that protects homeowners in their projects. The relationship continues from the beginning of a project until its completion.

Types of California Contractors Bonds

Surety bonds are of different types. The commonest amongst them is the bid, performance, and payment surety bonds. There is also the maintenance and supply bond. Each of these bonds plays a significant role in protecting homeowners. Let’s take a look at the two bonds that you must always require in a construction project.

  1. Performance bond; this agreement ensures that a contractor performs his obligation to a tee. It is important because it protects the owner of the project from spending above his/her budget to cover financial losses.
  2. Payment bond; this bond is a guarantee that the contractor will not owe parties crucial to the project such as the laborers, subcontractors or material suppliers.  It ensures that he pays them completely and as at when due.

How Contractor Bonds Protect Homeowners.

It is always smart to work with a contractor who has purchased the California contractor bonds. For instance, if a property owner wants to carry out a project, the surety bonds will protect his interest. It doesn’t matter whether it’s a complete construction project or any other type requiring a contractor. If you want your contractor to perform ethically and professionally, these bondsare necessary.

The performance bonds ensure that your contractor will complete the project you hand over to him. Without the bond, a contractor can abandon your project or do it carelessly. Once the performance bond is in place, he/she will abide by the terms & conditions of the contract. Your contractor will make sure that he/she keeps the schedule of the project and also meet the price. If for any reason the contractor defaults, the owner of the project can call on the surety company to honor the contract terms. In this instance, the company may use its contractor to complete the contract. Also, it can pay for every cost and allow the homeowner to complete it. Or, it can employ another contractor to finish the work. At the end of the day, the homeowner achieves his goals without suffering financial losses.

The payment bond, on the other hand, assures laborers, subcontractors and material suppliers that they will get their money. This bond also protects the homeowner because, without it, the contractor may not complete the project on time. However, once these parties know that they can lay claim on a bond for their money, they will perform at their best.

Whether you’re a contractor or a homeowner planning to hire one, never overlook the importance of contractor bonds. According to the Contractors State License Board (CSLB), up to 20,000 complaints come in every year about issues on contractors’ negligence. Also, in 2017, the CSLB recovered more than $47 million as restitution for project owners. Therefore, it is important that you work with a contractor who has purchased the bonds. The cost varies but you can also get cheap contractor bonds if you use the right company.