Which statement best describes a Contractor License Bond?

• A. A warranty extension from contractor
• B. The owner pays for the bond out of pocket
• C. A surety bond (insurance) that protects against contractor breaking construction laws
• D. A mortgage on construction equipment

Answer: (C)

A contractor license bond is a surety bond that protects the public by ensuring the contractor complies with licensing laws and regulations. It involves three parties: the contractor (the principal), the licensing authority or governing body (the obligee), and a surety company (the bond issuer). If the contractor fails to meet legal or licensing requirements, the obligee can make a claim against the bond to recover costs or penalties up to the bond amount, and the surety will pay the claimant and then seek reimbursement from the contractor. This is not a warranty extension or an insurance policy for the contractor’s own risks, and it’s not a mortgage on equipment. The contractor, not the owner, typically pays the premium for the bond to the surety.