You have probably seen companies advertise that they are “licensed and bonded,” but what does that actually mean? Licensed is obvious, they have the required licenses and permits to do the type of work they are advertising. Bonded, though, is a little more complicated.
To say a company is bonded, they must have a surety bond on their company or particular project. There are multiple different types of bonds, but today we will focus on surety bonds.
A quick google search for the definition of surety bond provided the following definition: “a three-party agreement that legally binds together a principal who needs the bond, an obligee who requires the bond and a surety company that sells the bond. The bond guarantees the principal will act in accordance with certain laws. If the principal fails to perform in this manner, the bond will cover resulting damages or losses.”
Basically what this means is that if the bonded party fails to fulfill their obligation to finish a job, complete construction, etc., the bond will step in and either pay to finish the job or find someone else to do so. This is an extra level of protection for you, the client, and for the company who holds the bond as well. If something catastrophic happens (say the death of the principal of the company), the bond will assure that jobs in progress are completed and save the company from countless issues. Rather than file a claim against your company, the client can file a claim against the bond to complete their project.
To protect yourself you should always look up a contractors bond on your state’s contractors bond lookup website as well as request proof of insurance from them in the form of a certificate of insurance which should be easily provided by their insurance office.
Now this is a super basic explanation of a bond, but if you need more information or want to look into a bond for your company, please let us know!