What a license bond is
A contractor license bond has three parties, not two. You are the principal, the party whose conduct is guaranteed. A surety company issues the bond and stands behind that guarantee with its own balance sheet. The obligee is the party the guarantee runs to. For a license bond, that is the state agency that licenses or registers you.
That third party is the whole difference between a bond and an insurance policy. An insurance policy is an agreement between you and an insurer: a liability policy answers claims made against you, and the insurer bears the loss. A license bond is a promise a surety makes to the state about your conduct, and you sign an indemnity agreement standing behind it.
You do not file a license bond because you want the protection. You file it because the agency will not issue, renew or reactivate the license without it. California's Contractors State License Board states the requirement and the amount in one line: "The bond must be in the amount of $25,000." [1] Washington requires a continuous contractor surety bond as a condition of registration [4]. Oregon fixes the amount by license endorsement in administrative rule [3].
A license bond is also not a bid bond, a performance bond or a payment bond. Those are written for one project and one owner, and they guarantee that you will sign the contract you bid, finish the work, or pay the people below you on that job. A license bond is not attached to a project at all. It sits behind your license for as long as you hold the license.
Which states require a contractor license bond
Our contractor license bond table covers 51 jurisdictions, the 50 states and the District of Columbia, and 50 have a published record. Of those, 9 require a license bond for the contractor license or registration they issue, 19 require one only in some cases, 19 set no contractor license bond and 3 leave contractor licensing and bonds to cities and counties. One more is listed as not yet verified.
Required for the state license or registration (9)
These states require a license bond of every contractor in the classes the bond covers. Where that is only some trades or registrations, a note after the state's name shows who the bond covers.
Alaska; Arizona; California; Nevada; New Jersey: all Home Improvement Contractor Businesses (HICBs) and Home Elevation Contractor Businesses (HECBs) obtaining, renewing or reinstating a New Jersey registration; New Mexico; Oklahoma: each active plumbing, electrical or mechanical contractor licensed by the CIB; Oregon and Washington.
Required only in some cases (19)
A bond is required only of some contractors: a particular trade or license class, nonresident contractors, or applicants who do not show the net worth or financial standing the agency asks for.
Arkansas, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Iowa, Maryland, Minnesota, North Carolina, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wisconsin.
No state contractor license bond (19)
These states set no contractor license bond at the state level. Cities and counties in some of them license contractors and set their own bonds.
Alabama, Connecticut, Idaho, Kansas, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Mississippi, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Pennsylvania, Texas, Vermont and Wyoming.
Set by cities and counties (3)
These states leave contractor licensing and bonds to cities and counties.
Colorado, Missouri and New York.
Not yet verified (1)
Indiana. The table lists it with no figure.
How large the bonds are
Among the bonds stated as a single dollar amount, the lowest is $2,500, for Minnesota's Manufactured Home Installer Bond (minimum penal sum of $2,500), and the highest is $200,000, for Arizona's residential recovery-fund alternative bond (flat $200,000, but only if the licensee elects a bond instead of paying the residential contractors' recovery fund assessment). Bonds set by a schedule, a formula or the agency case by case are left out of that comparison, and some of them reach higher or lower figures; each state's page gives its own.
All states in one table, with each bond's amount, the licensing agency and the statute.
Who a claim pays, and who repays
The direction of this guarantee is the part that gets read backwards. The bond is not there for you.
CSLB names the beneficiaries directly: "The bond is filed for the benefit of consumers who may be damaged as a result of defective construction or other license law violations, and for the benefit of employees who have not been paid wages that are due to them." [1]
A claim on your license bond is therefore made by someone else, about you: a customer whose work was defective, an employee whose wages went unpaid, or the agency enforcing license law. If the surety investigates and pays, the claimant is made whole up to the bond amount.
Then the second half happens. The surety is not an insurer absorbing a loss it collected premium to absorb. It is a guarantor that advanced money on your behalf, and under the indemnity agreement you signed it comes back to you for what it paid. A paid bond claim is a debt you owe.
That is why underwriting a bond looks like underwriting a loan. The surety is pricing whether you can repay it if it has to pay. Your credit, your financial statements and your claims record are the inputs, which is also why the same bond amount costs two contractors different money.
A bond is not coverage
A license bond does not pay your defense costs, your repair costs, or your loss on your own project. It pays someone damaged by you, and then the surety collects from you. Commercial general liability insurance and workers' compensation are separate products with separate rules. What a policy covers is set by its own terms, and what a state and a contract require is set by the licensing agency and the contract.
The bond amount is set by the state, the premium is not
Two different numbers both get called "the bond cost", and they are not related the way people assume.
The bond amount, or penal sum, is the ceiling on what the surety can be called on to pay across claims on that bond. It is set by statute or administrative rule, not by the surety and not by you, and in some states it follows the license class or the dollar volume of work. California sets $25,000 for the contractor's bond [1]. Washington sets $30,000 for general contractors and $15,000 for specialty contractors [4]. Oregon sets a separate figure for each license endorsement [3].
The premium is what you pay the surety, per year, to keep that bond in force. It is a percentage of the bond amount, and that percentage is underwritten. No state bond statute sets it.
annual premium = bond amount × premium rate
Two things follow. The bond amount is not something a surety negotiates, because the state fixed it. And the rate is the term that differs from one contractor to the next, moving on credit and history rather than on anything about the work.
Three states, three shapes
Three states with verified records show three different structures. They are three examples of how a rule can be built, not a national pattern.
California requires one bond for the license and can require two more. The contractor's bond is $25,000 [1]. A Bond of Qualifying Individual, also $25,000, is required "if the license is qualified by a Responsible Managing Employee (RME)", and also where the license is qualified by a Responsible Managing Officer "who does not own at least 10% of the voting stock of the corporation" [1]. A limited liability company files another: "A $100,000 surety bond (in addition to the $25,000 contractor bond) is required for the issuance of both active and inactive licenses" [2], and CSLB describes that bond as being for the benefit of workers damaged by the LLC's failure to pay wages, interest on wages, fringe benefits or other contributions [2].
Oregon sets the amount by what you are endorsed to do. OAR 812-003-0171 lists each endorsement with its own figure, among them Residential General Contractor at $25,000 and Commercial General Contractor Level 1 at $80,000 [3]. The Construction Contractors Board states how the schedule moved: "The bond amount will increase by $5,000 for each CCB endorsement type." [5] Change what you are endorsed for and the required bond changes with it.
Washington splits on scope of work rather than on residential versus commercial. Registration requires a continuous contractor surety bond "in the amount of: $30,000 for general contractors. $15,000 for specialty contractors." [4]
| State | Bond | Amount |
|---|---|---|
| California | Contractor's bond | $25,000 |
| California | Bond of Qualifying Individual | $25,000 |
| California | LLC bond, in addition | $100,000 |
| Oregon | Residential General Contractor | $25,000 |
| Oregon | Commercial General Contractor Level 1 | $80,000 |
| Washington | General contractor | $30,000 |
| Washington | Specialty contractor | $15,000 |
What it costs
The premium is not set by statute or rule, and the agency pages that fix the bond amount state no price. What can be published honestly is what surety agencies themselves put in writing about their own rates. Our contractor license bond cost calculator compiles ranges published by eight surety agencies and groups them by credit tier.
Those published ranges, as a percentage of the bond amount per year, are 0.4% to 3% for excellent credit, 0.4% to 5% for good credit, 0.9% to 15% for fair credit, and 2% to 15% for poor credit [6].
| Credit tier | Published annual rate |
|---|---|
| Excellent | 0.4%–3% |
| Good | 0.4%–5% |
| Fair | 0.9%–15% |
| Poor | 2%–15% |
Three cautions about that table. It records what agencies publish, not what any surety will charge you. The ranges overlap heavily, because published guidance is written to cover many states and many bond amounts at once. And the rate is only half the arithmetic: the bond amount multiplies it.
As an example using the amounts above, a 0.4% rate on a $25,000 bond is $100 for the year and a 3% rate on the same bond is $750. Hold the rate still and change the bond instead: 2% of a $25,000 bond is $500, while 2% of an $80,000 bond is $1,600. The rate a surety offers and the amount the state requires are two separate facts, and a premium figure means nothing without both.
A premium for one contractor comes from a surety or an agent who has looked at that contractor's credit and financials, and a written quote is where the bond term, the renewal terms and any filing cost are stated.
License bonds and project bonds
"Contractor bond" also names three bonds a contractor posts for one job rather than for the license: a bid bond, a performance bond and a payment bond. They have the same three parties as a license bond, with the project owner in the state's place as the obligee, but each one is written for a single contract.
On federal work, the Miller Act sets when they apply. Before a federal contract of more than $100,000 for the construction, alteration or repair of a public building or public work is awarded, the contractor furnishes a performance bond, running to the government, and a payment bond, for the people who supply labor and material on the job; the payment bond equals the total amount payable under the contract unless the contracting officer finds that impractical and sets a lower one [7]. The Federal Acquisition Regulation applies the requirement to construction contracts above $150,000, and for contracts above $35,000 up to $150,000 the contracting officer picks two or more other payment arrangements, such as a payment bond or an irrevocable letter of credit [8]. The bonds are due before the notice to proceed [8].
The bid bond comes first. Under the same regulation, one is required whenever a performance bond, or a performance and payment bond, is required, and it is at least 20 percent of the bid price, up to $3 million [9].
| Bond | When it is posted | Who it answers to |
|---|---|---|
| License bond | To hold a state contractor license | The state, for the people its bond law names |
| Bid bond | With a bid | The project owner, if the winning bidder does not sign the contract and furnish the other bonds |
| Performance bond | At contract award | The project owner, for completion of the work |
| Payment bond | At contract award | Subcontractors and suppliers who are not paid |
States, counties and cities set their own bond rules for their own public work, and a private owner can write any of these bonds into a contract. For a project bond, the bid documents and the contract set the amount and the form; the rest of this guide is about the license bond.
Where this varies by state
Bond requirements are written state by state, and the three above are not a template for the rest. Some states license and bond contractors at the state level. Some leave licensing to cities or counties. Some require a bond only for particular trades, particular license classes, or particular dollar thresholds of work. The bond amount, who may claim on it, how long it stays open after a job, and whether a cash deposit or letter of credit can be filed instead are all set by each state. Oregon's rule, for instance, is titled for the bond, letter of credit or cash deposit together [3].
Framing & Figures publishes verified per-state contractor license bond records, with the statute or rule and the date each one was checked. The full table is on our contractor license bond requirements by state page. The California, Oregon and Washington amounts on this page come from it, and so do the counts and the range of amounts above.
The current amount and form are set by each state's licensing agency, and they change: an amount that was right at the last renewal may have moved. Oregon's schedule did, and the increase is published on the agency's own page [5].
Frequently asked questions
What is a contractor bond?
A contractor license bond is a three-party guarantee filed with a state licensing agency as a condition of holding a contractor license. You are the principal, a surety company issues the bond, and the state is the obligee. It guarantees your conduct to the state; it is not insurance for you.
How does a contractor bond work?
Someone damaged by your work (a consumer, an unpaid employee, or the agency enforcing license law) files a claim with the surety. The surety investigates and pays valid claims up to the bond amount. It then recovers what it paid from you under the indemnity agreement you signed.
What is a contractor surety bond?
The same instrument, named for the company that issues it. The surety is the guarantor; the bond is its written guarantee to the obligee. Contract bonds such as bid, performance and payment bonds work the same three-party way but are written for one project rather than for your license.
Contractor bond requirements
The bond amount, the license classes it applies to, and the form you file are set by your state. California's contractor's bond is $25,000. Washington requires $30,000 for general contractors and $15,000 for specialty contractors. Oregon sets a separate amount for each endorsement. The current requirement is the one the state licensing agency publishes.
How much does a contractor bond cost?
The premium is a yearly percentage of the bond amount, and the surety sets it. Ranges published by eight surety agencies are 0.4% to 3% for excellent credit, 0.4% to 5% for good credit, 0.9% to 15% for fair credit and 2% to 15% for poor credit [6]. These are the agencies' published ranges, not quotes. On a $25,000 bond, 0.4% is $100 a year and 3% is $750.
Is a contractor license bond the same as insurance?
No. A license bond is a promise a surety makes to the state about the contractor's conduct: a claim pays the people the bond law names, such as a consumer or an unpaid employee, and the surety then recovers what it paid from the contractor. An insurance policy is an agreement between the policyholder and an insurer: a liability policy answers claims made against the policyholder, and the insurer bears the loss. Our guide to contractor bonds versus insurance compares the two.
What is a general contractor bond?
In the Washington and Oregon sources on this page, "general contractor" names a registration or endorsement category, and the license bond amount follows it. Washington requires $30,000 for general contractors and $15,000 for specialty contractors [4]. Oregon sets $25,000 for a Residential General Contractor and $80,000 for a Commercial General Contractor Level 1 [3]. Bid, performance and payment bonds that a contractor posts on a job are project bonds, written for one project rather than for the license.
Related
- Contractor license bond cost calculator: enter a bond amount and a credit tier to see the published rate ranges applied to it.
- State data: verified per-state records, including the contractor license bond dataset with the statute or rule behind each amount.
- Our guide to the difference between a contractor bond and insurance covers what each product pays, who it pays, and why carrying one does not satisfy a requirement for the other.