How to get bonded as a contractor?

Becoming a bonded contractor is essential for building trust and credibility in the construction industry. Bonds protect both contractors and property owners, ensuring that all parties meet their obligations. This blog explains what it means to get bonded, the types of bonds required, and the steps to secure bonding as a contractor.

In the construction industry, being bonded is a key requirement for many projects. But what does bonded mean in contracting? Simply put, it means that a contractor has purchased a type of surety bond, which acts as a financial guarantee. This bond guarantees that the contractor will fulfill the terms of their contract. If the contractor fails to meet these obligations, the property owner can file a bond claim to cover any financial losses. This bond guarantee is vital for the successful completion of construction projects.

What does bonded mean in contracting?

Being bonded in contracting means that a contractor has secured a surety bond from an insurance company or bonding company. This bond serves as a financial promise that the contractor will complete the work according to the contract’s terms. Should the contractor fail to do so, the bond protects the property owner by providing a mechanism to file a claim and recover any financial damages.

What are the three types of bonds that can be required from a contractor?

Contractors may need to secure three primary types of contract bonds:

1. Bid Bond. This type of surety bond ensures that the contractor will honor their bid and is capable of performing the work if selected. It protects the project owner if the winning bidder withdraws.
2. Performance Bond. A performance bond guarantees that the contractor will complete the project according to the contract terms. If the contractor fails to do so, the property owner can file a bond claim to cover any additional costs incurred to complete the project.
3. Payment Bond. This bond ensures payment to all subcontractors, suppliers, and laborers for their work on the project, protecting the property owner from potential liens.

What are the four types of bonds in construction?

In addition to the three bonds mentioned above, there are also:

1. Bid Bond. Protects the project owner if the bidder withdraws or fails to execute the contract.
2. Performance Bond. A bond guarantee that ensures the contractor will perform the contract as agreed.
3. Payment Bond. Guarantees payment to all parties involved in the project.
4. Maintenance Bond. Guarantees that the contractor will repair any defects in the work for a specified period after project completion.

Steps to Get Bonded

1. Determine the Type of Bond Needed. The first step in the bonding process is to identify the bond requirements for your specific project. Common bond forms include contractor license bonds, performance bonds, and payment bonds.
2. Find a Surety Bond Provider. Once you know the bond you need, you’ll want to find a reputable surety bond provider or insurance company. Also, these companies specialize in issuing bonds for contractors.
3. Submit an Application. The bonding process involves submitting an application, which includes providing your financial statements and business details. So, the surety bond provider will review your financial stability and credit history.
4. Undergo a Credit Check and Financial Review. The surety bond provider will assess your financial health to determine the risk of issuing the bond. Strong financial statements can enhance your chances of securing a bond.
5. Pay the Premium. To purchase a surety bond, you’ll need to pay a premium, which is typically a percentage of the total bond amount. This cost can vary depending on your credit score and financial history.
6. Receive and File the Bond. After you’ve purchased the bond, you may need to file it with the appropriate authorities to meet the legal bond requirements for your construction projects.

What does it mean to be bonded?

A business qualifies as bonded upon obtaining a surety bond. Businesses may require bonds to accomplish many basic business activities, such as obtaining a license, bidding on a job, or signing a building contract. Companies buy bonds to win jobs, compete with other businesses, and establish a reputation for trustworthiness.

Bottom line

Finally, understanding what it means to be bonded and the types of bonds required is crucial for any contractor looking to succeed in the construction industry. Surety bonds, including contractor license bonds, performance bonds, and payment bonds, play a vital role in protecting both contractors and property owners. Also, these bonds guarantee that construction projects are completed as agreed, and if a contractor fails, they offer financial protection. In summary, by navigating the bonding process and meeting all bond requirements, contractors can establish trust with clients and secure more opportunities in the industry.

Written by Vanessa Gallanti. February 23, 2025

Enthusiast about planning, project management, construction materials and technology, and construction. A civil engineer from Los Andes University and a content writer for Kukun.