• Thu. Jun 30th, 2022

Contractor License Bonds are a licensing requirement that aims to protect the interests of owners and ensure that contractors will complete the agreed work. As in most states, Arizona contractors must obtain a contractor’s license bond before receiving a license.

The surety is one of the essential criteria that entrepreneurs must meet in order to obtain the legal right to operate in Arizona. For homeowners, working with a bonded contractor ensures a higher level of safety. For entrepreneurs, being bonded is a sign of reliability.

Let’s take a look at how contractor’s license obligations work, what Arizona residents need to know about them, and how they protect homeowners.

How do contractor’s license bonds work?

Contractor License Bonds are a legally binding contract that a contractor must sign with a surety, the latter acting as security before a state authority. It provides assurance that the entrepreneur will follow the law and fulfill their agreed commitments to customers. The surety financially supports the entrepreneur by issuing his bond.

The surety bond is like an additional line of credit that the surety provides to the contractor. Therefore, when obtaining a bond, entrepreneurs must prove their financial and commercial stability.

The guarantor examines his credit, finances and assets. Next, contractors must sign an indemnity agreement, which means they are responsible for all claim costs. As it shows, the bonding process is rigorous, ensuring the strength of a contracting business and protecting owners from unethical contractors.

Types of Arizona Contractor License Surety

Depending on the type of construction work they are doing, contractors must obtain different licenses from the Arizona Registrar of Contractors. Each type of license has specific bonding requirements that it must cover.

The amount of the deposit depends on the license and the volume of work that a contractor has carried out or the projects to be carried out. This amount is also the maximum compensation that an owner (or other client) can claim in the event of incomplete work or fraudulent practices on the part of the contractor. Here are the amounts depending on the type of contractor’s license:

  • Residential general contractors: between $ 9,000 and $ 15,000.
  • Specialized residential contractors: between $ 4,250 and $ 7,500.
  • General commercial contractors: between $ 15,000 and $ 100,000.
  • Specialized commercial contractors: between $ 2,500 and $ 50,000.

Thus, the compensation that homeowners can receive from the contractor’s bond is considerable. If you are hiring a contractor, you can first find out about their type of license, so that you know what type of protection you are getting.

Protection for owners and clients

When bonded, contractors only cover a percentage of the bond amount, but as mentioned, the protection offered by the bond to clients of contractors is full.

This means that if a landlord makes a claim against a contractor’s bond, they can get compensation up to the full amount of the bond. For example, if a contractor has posted a $ 20,000 bond, an affected customer can claim the entire frame.

In the event of proven claims, the surety who issued the bond is initially responsible for reimbursements. Thus, customers are fully protected and guaranteed fair and timely compensation. Subsequently, the contractors must reimburse the deposit, as agreed in the indemnity agreement signed at the time of the bond.

Contractor license bonds work as a safety net for homeowners and other clients. At the same time, they are also a sign of good reputation for contractors and help to protect the reliability of the contracting company.

Todd Bryant is the president and founder of Bryant bonds .

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