What Is a Contractor's License Bond?
Contractor's license bonds are also known as surety bonds or performance bonds. They are issued to protect the rights and interests of the clients to the contract. The bonds state that the contractor must satisfactorily complete the work or will compensate the client monetarily.
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Function
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A bank or financial institution stands as guarantee to the bond. The bank evaluates all the components of the contract and fixes on a mutually agreeable bond rate. The contractor pays premium until the completion of the contract and thereafter he is refunded the whole premium amount. The premium on these bonds is a percentage value of the penal sum on the bond rate.
Features
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The client can legally sue the contractor if the contract is not completed as per her specifications. At the time of signing the contract, both parties mutually agree on the task to be completed, the budget and the time to completion.
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Significance
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Contractor's license bonds are usually used in the real estate and construction industries. Banks and financial institutions stand as third-party guarantees to these bonds.
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