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Generally speaking, bonds are a promise to pay one party a certain amount if a second party fails to fulfill an obligation or terms of a contract. While bonds are used in several different types of industries, including catering, cleaning, and mortgage industries, they are most common in construction. Within the construction industry, there are many types of bonds, including surety bonds, license bonds, bid bonds, payment bonds, and performance bonds.

As a condition of your Contractor Licensing, contractors are required to post some form of security deposit with the Contractors State License Board (CSLB). Surety bonds are commonly used for this purpose, but cash or certificates of deposit may also be posted.

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A surety bond should not be confused with an insurance policy as there are important distinctions between the two. One important distinction is that the contractor remains liable for his or her own obligation, and must repay the surety for losses incurred by the surety as a result of the contractor’s actions.


What is the amount of the required bond?

In California, the amount of the required bond is $15,000 for all classifications of contractors B&P Code Section 7071.6 (a)
The bond amounts are not per job-they are the amount available for all the jobs a contractor takes on during the life of the bond. In addition, the CSLB may require a separate bond for contractors who have been disciplined, and the amounts of these bonds vary.

What can a contractor do to avoid a claim against a bond?

In order to prevent a claim against a bond, a contractor should always put the terms of a construction contract, and any amendments, in writing. A contractor should maintain accurate records of payments made and received, and confirm in writing any agreements reached if the project is terminated. A contractor should communicate frequently and effectively with project owners and prime or subcontractors regarding any potential or actual problems.

 Performance Bond

A performance Bond is issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract. It is also referred to as a contract bond. A performance bond is usually provided by a bank or an insurance company to make sure a contractor completes designated projects. The Miller Act instituted the requirement of placing performance bonds.

The Act covers all public work contracts $100,000 and above. These bonds are also required for private sector that necessitate the use of general contractors for their company’s operations. Jobs that require payment and performance bonds go through job or project bidding first. As soon as the job or project is awarded to the winning bidder, payment and performance bonds are provided as a guarantee for the completion of the project.