On commercial and public projects the general contractor is the prime that carries the bid, performance, and payment bonds and signs the indemnity agreement for them. Under the Miller Act on federal work, the GC posts a performance and payment bond at 100 percent of the contract price.
Surety bonds for contractors
A three-party guarantee that you will meet a licensing or contract obligation. The surety pays the obligee if you default, then recovers what it paid from you. A bond protects the obligee, not you.
Why Coverwatch
- Markets
- Surety markets a standard agent cannot reach, including SBA-backed programs and sureties that will bond credit-challenged principals, then grow your single and aggregate bond lines as the work gets bigger.
- Competition
- 60+ markets put head to head on the rate you pay on the bond, the collateral a surety demands, and the indemnity terms you sign, not just the premium quote.
- Speed
- Fast license and bid bonds issued to the obligee's wording, so a licensing renewal or a bid deadline is never the reason you miss the work.
For contractor
- What it covers
- Guarantees to the obligee, a license board, a public owner, or a project owner, that you will perform the obligation or that they are made whole if you do not.
- What it doesn't
- It is not insurance for the contractor. The surety can recover from you every dollar it pays out on a claim.
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What is a contractor surety bond and what does it cover?
A contractor surety bond is a three-party guarantee that you, the principal, will meet a licensing or contract obligation owed to an obligee. If you default, the surety pays the obligee up to the penal sum, then recovers that money from you. It protects the obligee, and is a guarantee, not insurance.
Why a contractor surety bond is a guarantee, not an insurance policy
A surety bond looks like insurance and is sold through insurance channels, but it runs the other way around.
License and permit bonds keep you licensed
Most state contractor boards and municipalities require a license bond before they will issue, renew, or reactivate a trade license.
Contract bonds win public and private work
Bid, performance, and payment bonds let you compete for jobs that require a financial backstop.
A bond is not insurance, so you indemnify the surety
You sign a general indemnity agreement that makes you, and usually you personally, liable to repay every claim the surety pays.
How we get you covered
We take surety bonds for contractor to 60+ markets, build it to fit your contracts, and keep your certificates compliant.
Read your risk
We map what could actually go wrong in your operation, where a claim would come from, and who would bring it.
Shop 60+ markets
We take your risk to the carriers that know your class and make them compete on price and terms.
Build the endorsements
We add the endorsement wording that decides whether the policy responds to a claim, beyond the base form.
Keep you compliant
We handle the COIs, additional-insured certs, and renewals, so you are never the one chasing paperwork.
Get a quoteFlat fee, no markup on your premium.
What's covered, and what isn't
In the policy
License and permit bond
The obligee is your state contractor board or a local permit office.
Bid bond
The obligee is the project owner taking bids.
Performance bond
The obligee is the owner who awarded the contract.
Payment bond
The obligees are your subcontractors and material suppliers.
Maintenance and warranty bond
The obligee is the owner after the work is finished.
Not in the policy
Your own loss when a claim is paid
Every dollar the surety pays an obligee, you repay, plus the surety's costs.
Covered by the indemnity agreement you signed, not a covered loss
Third-party bodily injury and property damage
If your crew injures a bystander or damages a client's property on the job, that is a third-party liability claim.
Covered by General Liability
Damage to the project you are building
A bond does not insure the structure under construction against fire, wind, water, or theft while work is underway.
Covered by Builders Risk
Injury to your own employees
A worker hurt on the job is a statutory workers compensation claim, not a bond claim.
Covered by Workers Compensation
Damage to or theft of your tools and equipment
Losing tools, machinery, or materials to theft or damage in transit or on site is a first-party property loss to you.
Covered by Inland Marine
Get a quoteGet a policy built for contractor.
Claims surety bonds pays
A bond claim is not paid to you. The obligee calls the bond, the surety pays them, and then the surety comes to you for repayment. These are the bond claims contractors actually face, with the typical band and how each one works.
ScenarioHow the claim happensTypical cost
Contractor abandons a public job, performance bond called
A contractor walks off a bonded public project partway through.
$250K–$5M+
Unpaid subs and suppliers file on the payment bond
A prime contractor finishes the job but never pays its subcontractors and material suppliers.
$15K–$500K
License-board complaint triggers the license bond
A homeowner pays a licensed contractor a deposit, the contractor never performs.
$5K–$25K
Low bidder walks, bid bond forfeits
A contractor is named low bidder, then realizes the number was too low and refuses to sign the contract.
$25K–$250K
Ranges are typical claim and completion bands for these bond types, not a quote. A paid bond claim becomes your debt to the surety; actual exposure depends on the penal sum and the contract.
Get a quoteGet covered before a claim lands.
What contractor buyers are required to carry
The limits contracts and statutes set for this line, and what moves your premium and terms.
What buyers require
- State contractor license board
- ~$10K–$25K
- Federal projects (Miller Act)
- 100% of contract price
- State and local projects (Little Miller Acts)
- Often 100% of contract price
- Private owner
- Performance + payment bond
Most states require a contractor license and permit bond to hold a trade license. The amount varies by state and municipality; California sets a $25,000 contractor license bond under CSLB, and LLC contractors there also file a separate $100,000 LLC worker bond.
On covered federal construction work, the Miller Act at 40 U.S.C. 3131 requires both a performance bond and a payment bond, each typically written at 100 percent of the contract price, before the job can proceed. The bonding requirement applies above $150,000 under the FAR.
Most states mirror the federal rule for public works above a state-set threshold, requiring performance and payment bonds before a public contract is awarded. The threshold and claim procedures vary by state.
An owner or a lender on a private project can require a performance and payment bond by contract even though no statute forces it, to guarantee completion and protect the subs and suppliers on the job.
What sets your cost and terms
- Bond amount and contract price
- Premium is charged as a percentage of the penal sum or the contract price.
- Your personal and business credit
- A surety weighs your credit heavily because it is guaranteeing your obligation and expects to recover any claim from you.
- Financial statements and working capital
- For contract bonds the surety reviews your balance sheet, working capital, and bank and credit references.
- Work type and experience
- Your track record on similar jobs, the complexity of the work, and whether it is public or private all shift the rate and the terms.
How this changes by contractor segment
The policy is the same product; the exposure, the limit, and the exclusions to watch shift by segment.
A state contractor license bond is usually required to hold the electrical license, and many municipalities require a permit bond to pull electrical permits. On larger bonded construction, an electrical contractor working as a subcontractor may also be required to post a performance bond to the prime, so the license bond and the contract bond serve two different obligees.
Most states and municipalities require a license and permit bond to hold the plumbing license and to pull permits, and it renews with the license. On public and larger private work, a plumbing contractor bidding as a sub can face a performance and payment bond requirement from the prime or the owner, on top of the standing license bond it already carries.
Endorsements that close the gaps
The base form is the start. These add-ons are where the policy gets built to fit contractor.
General Indemnity Agreement
GIAThe document that makes a bond a guarantee rather than insurance.
Rider to increase or decrease the penal sum
Adjusts the bond amount when the obligee changes the required penal sum or a contract value changes by change order.
Consent of Surety
A separate document in which the surety agrees to a specific act on a bonded contract, such as final payment or a reduction in retainage.
Maintenance / warranty bond
Extends the guarantee past completion to cover defects that surface during a warranty period, often one to two years.
By the numbers
The party structure, license-bond amounts, statutory thresholds, and premium facts that surface when a contractor is underwritten for a surety bond.
- Parties to a contractor surety bond
- Three, not two
- California contractor license bond amount
- $25,000
- Federal bonding threshold
- $150,000
- SBA bond guarantee ceiling
- $9M / $14M federal
- Typical contract bond premium
- ~1–3% of contract price
A surety bond is a three-party agreement among the principal who must perform, the obligee who requires and is protected by the bond, and the surety that guarantees the obligation. An insurance policy is a two-party contract, which is why a bond behaves differently and why the contractor indemnifies the surety.
The California Contractors State License Board requires a $25,000 contractor license bond to issue, renew, or reactivate a license. Senate Bill 607 raised it from $15,000 effective January 1, 2023, and it remains $25,000. LLC contractors also file a separate $100,000 LLC employee and worker bond.
Under the Miller Act, federal construction contracts require both a performance bond and a payment bond. The statutory floor in 40 U.S.C. 3131 is $100,000; the Federal Acquisition Regulation raises the bonding requirement to contracts above $150,000, each bond typically at 100 percent of the contract price.
The SBA Surety Bond Guarantee Program backs bid, performance, and payment bonds on contracts up to $9 million, and up to $14 million on federal contracts, guaranteeing 80 to 90 percent of the bond. That lets small and credit-challenged contractors secure bonding a surety would otherwise decline.
Standard-credit principals usually pay between roughly 1 and 3 percent of the contract price on performance and payment bonds. License and permit bonds are often issued as a flat annual fee on credit alone, and weaker credit runs higher.
Common questions
about surety bonds for contractor insurance
A contractor surety bond is a three-party guarantee that a contractor will meet a licensing or contract obligation. The three parties are you, the principal who must perform, the obligee who requires and is protected by the bond, and the surety that backs you. If you default, the surety pays the obligee up to the penal sum, then recovers every dollar from you under the indemnity agreement. Contractors carry two broad kinds. License and permit bonds are required to hold a trade license. Contract bonds, meaning bid, performance, and payment bonds, are required to win and complete construction contracts. A bond protects the obligee, never you.
No. A surety bond is a guarantee, not insurance, and confusing the two is a costly mistake. Insurance is a two-party contract where the carrier pays you when you suffer a covered loss. A surety bond is a three-party arrangement where the surety pays the obligee when you fail to perform, then recovers that money from you under a general indemnity agreement. There is no risk transfer to the contractor. You buy a bond because a license board, a public owner, or a project owner requires a financial backstop standing behind your word. You still carry general liability, workers compensation, and other real insurance separately, because a bond covers none of your own liability.
A license bond and a performance bond guarantee different obligations to different parties. A contractor license bond is required by your state board to hold a trade license, and it guarantees you will follow the licensing code and statutes that govern your work. Its penal sum is fixed by the state, often between $10,000 and $25,000, and it renews with your license. A performance bond is tied to a specific construction contract, and it guarantees you will complete that job to its terms. Its penal sum is usually 100 percent of the contract price, and it exists only for the life of that project. One keeps you licensed; the other lets you take on a bonded job.
It depends on the bond type and your credit. A license bond is often a flat annual fee, commonly a few hundred dollars for a contractor with decent credit, and higher for weaker credit. Contract bonds, meaning performance and payment bonds, are usually charged as a percentage of the contract price, commonly around 1 to 3 percent, so a $1 million project might carry a bond premium of roughly $10,000 to $30,000. The rate turns on your personal credit, your financial statements, and your work history, because a surety underwrites you like a lender. The premium is what you pay for the guarantee, and you do not get it back.
Yes. That repayment is the defining feature of a surety bond. When the surety pays an obligee on a valid claim, it comes back to you for full reimbursement under the general indemnity agreement you signed. The repayment can include the claim amount plus the surety's legal and investigation costs. Because most indemnity agreements include personal indemnity, the surety can pursue your business assets and often your personal assets. A paid claim also damages your bonding capacity, making future bonds harder and more expensive to obtain. A bond is not insurance for you, so a paid claim becomes your debt, not a covered loss.
The Miller Act is the federal law, at 40 U.S.C. 3131, that requires surety bonds on federal construction contracts. On covered work it requires both a performance bond, guaranteeing the job is completed, and a payment bond, guaranteeing that subcontractors and suppliers are paid. Both are typically written at 100 percent of the contract price. The statutory floor is $100,000, and the Federal Acquisition Regulation raises the bonding requirement to contracts above $150,000. Most states have their own Little Miller Acts that apply the same performance and payment bond rule to state and local public works above a state-set threshold, though the exact amounts and claim procedures vary by state.
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