when a contractor get bonded for a job, what exactly is covered under the bond,
2 Answers from Attorneys
It varies substantially. In addition to the usual bonds that all licensed contractors must carry, and which are sometimes called license bonds or surety bonds, some jobs require the contractor(s) to have performance bonds or completion bonds. Surety bonds are currently for $12,500 max (in most cases) while the latter kinds can be for up in the millions.
The Contractors State License Board's Web site allows easy access to a .pdf file of a two-page brochure explaining license bonds. Go to www.cslb.ca.gov/Resources/GuidesAndPamphlets and look for the one on license bonds.
A license bond covers all jobs the contractor is doing or has done under the license, but the other two kinds of bonds are targeted to specific contracts. The CSLB is not involved; these bonds are demanded by the party for whom the job is done and cover only one job or a group of related jobs for that client.
Mr. Whipple is correct as far as his answer goes. To elaborate a bit further, the small license bond he refers to is for the protection of the owners of projects from any violation of the Business and Professions Code provisions governing contractors and their work. That covers many things that can commonly go wrong on a project, including most defective work, failure to complete, and failure to pay subcontractors, suppliers and workers (which can get the owner liened and sued). The private surety bonds are indeed contract-specific. There are two kinds: Payment Bonds, and Performance Bonds. They are pretty much what they sound like. In the case of a payment bond, the surety guarantees the owner that if the contractor does not pay for labor, materials and supplies, that the surety will. The performance bond is a guarantee of strict performance of the contract. If the contractor fails to fully and properly complete the contract, the surety will actually step in and hire a completion contractor. Of course sureties are in the business of collecting premiums, not paying them out, so do not expect that they will just step up to the plate in the event of problems with payment or performance on a job, but that is the basic idea.
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