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Contractor License Bonds and Performance Bonds: What’s the difference?

When it comes to starting a new project and hiring a professional to manage different the contracts, every client or project owner must stay secured and protected at all times. This is to ensure that the funds are optimally utilized and all works are completed within the target period. Surety bonds are a common means of keeping yourself secured from any untoward event that might happen during the project.

Contractor License Bonds and Performance Bonds What's the difference

A surety bond is a written agreement between the principal, also called as the project owner and the contractor. A surety company acts as the middleman which issues the document upon the payment of premium and other documentary expenses (notarization fees, stamps, and others) by the contractor. The acceptance of the contractor’s bid by the principal must be a requirement before the surety company grants the bond for the project. There are several types of surety bonds that are required by government regulatory agencies not just in your local area but all over the world. Among all of these, the contractor license bond and the performance bond are two of the most common.

Learn more about contractor license bond and performance bond below and stay secured as you turn your project into a complete success.

Contractor License Bond

A contractor license bond is a general requirement of a regulatory body, permitting a licensed contractor to operate within an administrative area. Depending on the requirements of the regulatory body, a contractor may be required to secure separate license bonds for the local (municipal) and state authorities. In contrast to a performance bond, a contractor license bond may be acquired even if a project has not been awarded yet to the contactor.

A contractor license bond serves as a guarantee to the authoritative body that the contractor will abide by all the rules and regulations set within the area. While this is the basic purpose of a contractor license bond, there are also other types that take into account other certifications as well. These may include proofs of satisfactory performance from past clients and diligent payments to subcontractors (for goods and services).

Performance Bond

A performance bond, on the other hand, deals with a particular project at hand. It can be acquired by the contractor after winning a bid and upon awarding of the project by the principal. This document is a guarantee that the contractor will comply with all the duties and obligations and deliver the services as stated in the contract. In any event that the contractor fails to abide by the agreement, the project owner may file a claim to the surety company to compensate for the losses and damages.

As a conclusion, the importance of the two depends on what you will need the surety bond for. If you are to practice your profession in a local area, a contractor license bond is what you shall secure. Meanwhile, a performance bond is required only after a project has been won by the contractor.

Now that you know the difference between the two types of surety bonds, make it a point to secure the documents only from accredited surety companies. Contact your trusted California CSLB bond provider now and get your project covered.

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