Bonds may be classified as:
Contractor's License Bond – A bond with a surety company or cash deposit of $12,500 with the state is required of all licensed contractors in California. This bond is not a guarantee of performance, competence or financial responsibility.
Performance Bond – This type of bond guarantees the project's completion according to the building plans and specifications. If the job is abandoned or the work in unacceptable, the bonding company has the option of hiring another contractor to complete the work or of paying for damages.
Payment Bond – A payment bond assures the owner that no liens for labor and/or material will be filed against the property.
Contract Bond – A contract bond guarantees both job completion and payment of all labor and/or materials. In general, the bonding company will not have to pay more than the face amount of the bond.
Consumers should realize that bonding requirements may keep a new contracting business from bidding on desired jobs. Bonding companies will not take a risk without verifying the technical and resource capabilities of the contractor. For a contracting business for qualifying for bonding, it must practice sound business techniques.
Coast Management of California