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Contractor bonds can provide peace of mind to those working on a project, and they can ensure a project is completed smoothly, but before you dig into all of your options, it is important to understand what a bond is. According to, a bond is a debt security. Much like an IOU, it allows projects to begin with an agreement to complete the project in a certain way for a certain amount of time. By the time the project is complete, the promises of the bond must be fulfilled.

The trouble is, there are many different types of contractor bonds to choose from! What kinds of bonds do you need?

Contractor License Bonds

If you want to be a licensed contractor in the United States, you have to use a contractor license bond. This bond is required, even if you are fully insured. It assures the state issuing the bond, the general public, and also the person hiring the contractor that they will adhere to all state licensing regulations and statutes. A contractor can be held liable much more easily for faulty or incomplete work with a contractor license bond, which can bring clients peace-of-mind.

In order to obtain a bond, you must be in good standing with the person or agency providing the surety bond, you must have credit approval, you must provide proof of solid financial backing, and you must be able to demonstrate a reliable work history.

Bid Bonds

A bid bond isn’t usually required when placing a bid for a project, but it can help a contractor land the job. Clients are more likely to choose a contractor who supplies a bid bond with other contractor bonds because it acts as a promise that they will abide by the terms of the bid they provide.

Performance Bonds

Bid bonds and performance bonds are often grouped together, but they are different things. The bid bond comes first when being awarded a project, while the performance bond ensures everything in the bid bond comes to pass.

The performance bond ensures you will adhere to all the terms of the bid bond. If the contractor defaults on the contract, the contract can be broken and the client can be compensated for the losses.

Payment Bonds

Contractor bonds exist between contractors and local regulators as well as clients, but they also exist between the contractor and other professionals who are working with the contractor. For example, payment bonds are a guarantee to your subcontractor and suppliers that you’ll pay them in full for the work and supplies that they provide. It gives them peace of mind that they will be compensated according to the terms of the agreement. If they are not, they can make a claim against the bond to receive fair payment.

Additional Types of Contractor Bonds to Consider

Depending on the nature of the work, local regulations, and requests from the client, you may want to consider other types of contractor bonds like:

  • Supply bonds guarantee that suppliers are held accountable for supplying the agreed upon materials and equipment.
  • Site improvement bonds guarantee the agreed upon improvements that are being made in a renovation project.
  • Subdivision bonds require contractors to build other structures, like sidewalks, in accordance with local specifications.

Working with a professional insurance company, like DJM Insurance, is always a good idea if you’re looking for contractor bonds for an upcoming project. An insurance professional can help you customize a contractor license bond, and they can help you determine what other kinds of bonds you may need, as well as the details that should be included in each one.

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