What is a surety bond?

Surety bonds are common in construction but often misunderstood. Unlike insurance (which absorbs risk in exchange for premium), surety bonds are effectively guarantees that the contractor will perform — with the contractor ultimately responsible for any payout.

Three parties to every surety bond:

1. Principal — the contractor (the party whose performance is guaranteed).
2. Obligee — the party protected (homeowner, state, project owner).
3. Surety — the bonding company that pays claims if the principal fails.

Main types of construction bonds:

1. License Bond — required for state contractor licensure. Guarantees the contractor will comply with licensing law. Amount: $10K-$25K typical. Consumers can make claims for specific covered losses.

1. Bid Bond — guarantees a bidder will accept the contract if awarded at the bid price. Common on large public/commercial projects. Residential rarely requires.

1. Performance Bond — guarantees the contractor will complete the project per contract. Typically 100% of contract value. Common on large projects; rare on residential under $500K.

1. Payment Bond — guarantees the contractor will pay subs, suppliers, and laborers. Protects against lien claims. Required on most public projects; optional on private.

1. Maintenance Bond — guarantees workmanship for a specified period after completion.

How surety is different from insurance:

• Insurance — two-party. Insurer absorbs risk in exchange for premium. No recourse to insured after paying valid claim.
• Surety — three-party. Surety guarantees performance but has contractual right to recover from principal.

Practically: if surety pays a claim on the contractor's bond, the contractor owes the surety back. Surety bonds work because contractors put personal assets behind them via indemnity agreements.

License bonds — homeowner implications:

• Required for state licensure in most states that license residential contractors.
• California: $25,000 (2026).
• Oregon: $10,000-$20,000 by class.
• Washington: $12,000 general / $6,000 specialty.
• Florida: $20,000+.

Consumers can claim against license bonds for: - Unpaid wages to employees. - Unpaid sub/supplier bills leaving homeowner exposed to liens. - Abandoned work. - Non-compliance with license law.

Performance and payment bonds — when homeowners might use them:

• Custom home construction over $500K.
• Major additions over $200K.
• Luxury remodels over $300K.
• Projects financed with institutional loans (lenders sometimes require).

Cost: typically 1-3% of contract value. So a $300K addition with performance+payment bonds costs $3,000-$9,000 in bond premiums.

When performance bonds make sense for residential:

• Project is large enough that GC failure would cause substantial loss.
• Contractor is relatively new or has recent financial stress.
• Contractor operates as LLC with limited personal assets.
• Project is time-sensitive and replacement would be difficult.

When they don't:

• Small to mid-size projects.
• Contractor has strong reputation and references.
• Contractor carries adequate insurance and robust license bond.

How to claim on a license bond:

1. File complaint with state licensing board.
2. Obtain judgment or board finding of wrongdoing (varies by state).
3. File bond claim with surety.
4. Provide documentation of loss.
5. Surety investigates; pays valid claim up to bond amount.

AskBaily verifies license bond status for every matched contractor as part of ongoing verification. We don't require performance bonds on typical residential remodels but can facilitate them for large projects.