Contractors purchase bonds from a surety bond company (similar to an insurance company). The bond is a guarantee for the contractor's performance, payment, or both. If you hire a contractor and he does not do his job, you can get money from the surety bond company. If you are a subcontractor or a supplier and the contractor does not pay you, you can get money from the surety bond company.
When Is a Bond Required?
Some jurisdictions require contractors to post a bond before they can begin working. If it is not required, customers can also require a bond from the contractor when negotiating the construction contract.
How Do I Make a Claim on a Bond?
You may make a claim on a bond if a contractor you hired fails to perform his contractual duties, such as abandoning the job or doing extremely low quality work. Additionally, the contractor must refuse to repair or complete the job, or refuse to pay you money to hire someone else to repair or complete the job. Contact the contractor's surety bond company and it will tell you what forms to fill out and what documents to gather to have your claim processed.
How Much Can I Recover?
A surety company will pay for any damages suffered as a result of the contractor's inadequate performance. However, you can only get up to the amount of the bond. Beyond this amount you can still sue the contractor separately for breach of contract.
Should I Contact a Lawyer about Contractor's Bonds?
Contractor bonds involve very complicated legal issues and their treatment in courts varies from state to state. If you are having problems collecting money from a surety bond company, an experienced construction lawyer may be able to help you settle your claim. If the surety company denies any wrongdoing by a contractor, a lawyer can help determine if there has been a breach of contract or assist in a lawsuit against the company and the contractor.