Contractor Bond Types Explained

Not all surety bonds do the same thing. The type of bond you need depends on what's being guaranteed, who's requiring it, and for what purpose. Contractors can encounter several different bond types across their careers. Here's what each one does.

License Bond (Contractor License Bond)

The most common bond type for contractors. Required by state licensing boards as a condition of issuing a contractor license. Guarantees that the contractor will comply with state licensing laws — obtaining permits, not abandoning jobs, not misrepresenting work, and meeting financial obligations required by licensing law.

• Who requires it: State licensing boards (CSLB in California, ROC in Arizona, CCB in Oregon, L&I in Washington, etc.)
• Face amounts: Typically $5,000–$100,000 depending on state and license class
• Term: Usually continuous (stays active until cancelled)
• Who can claim: Licensing board, clients harmed by licensing violations

This is the bond on your license application. If you're researching bonds for a state contractor license, this is what you need.

Performance Bond

Guarantees that a contractor will complete a specific project according to the contract terms, on schedule, and at the agreed price. If the contractor defaults, abandons the job, or fails to perform, the surety steps in — either financing the original contractor to complete the work, hiring a replacement contractor, or paying the project owner up to the bond amount.

• Who requires it: Project owners on public works projects (required by law on federal and many state/local government projects); some private owners on large commercial projects
• Face amounts: Typically 100% of the contract value
• Term: Project-specific; expires when the project is complete and warranty period ends
• Who can claim: The project owner/obligee named on the bond

Performance bonds are project-specific and separate from your license bond. A contractor with a $15,000 license bond can still be required to post a $500,000 performance bond on a public project — these are entirely different instruments.

Payment Bond

Guarantees that a contractor will pay subcontractors, laborers, and material suppliers on a project. Without a payment bond, unpaid subs and suppliers can place mechanics' liens on the project owner's property — even if the owner already paid the general contractor. A payment bond redirects that risk to the surety.

• Who requires it: Required by federal law (Miller Act) on federal public works projects over $150,000; required by most state equivalents (Little Miller Acts) on state and local public works; sometimes required by private owners
• Face amounts: Typically 100% of the contract value
• Term: Project-specific
• Who can claim: Unpaid subcontractors, suppliers, and laborers on the project

Performance and payment bonds are almost always issued together as a package — called a "P&P bond" — on public works projects.

Permit Bond (Site Bond / Right-of-Way Bond)

Required by a city, county, or municipal authority for specific permitted work — particularly work in public rights-of-way (street cuts, utility work, sidewalk work) or for demolition permits. Guarantees that the contractor will complete the permitted work and restore the site to required conditions.

• Who requires it: City or county permit offices; utility companies for work in public easements
• Face amounts: Varies widely — $500 to $50,000+ depending on the scope of work and jurisdiction
• Term: Project-specific; tied to the permit period
• Who can claim: The municipality or authority requiring the permit

Permit bonds are in addition to your license bond — they're required for specific jobs, not as a general licensing requirement. Some jurisdictions require them for every permit; others only for certain types of work.

Bid Bond

Guarantees that if a contractor's bid is accepted on a project, the contractor will enter the contract and provide the required performance and payment bonds. Protects the project owner from a contractor who wins a bid and then backs out (forcing the owner to go to the next bidder, often at a higher price).

• Who requires it: Project owners on public works bids; sometimes required on private commercial project bids
• Face amounts: Typically 5–10% of the bid amount
• Term: Bid validity period (usually 30–90 days from bid submission)
• Who can claim: The project owner if the bidder wins and fails to execute the contract

Fidelity Bond (Employee Dishonesty Bond)

Not a surety bond in the traditional sense — a fidelity bond protects the contractor's clients (or the contractor themselves) from financial loss caused by employee theft, fraud, or dishonesty. If an employee steals from a client's home while on the job, a fidelity bond covers that loss.

• Who requires it: Not legally required in most states; often marketed as a value-add to clients ("we're bonded against employee theft")
• Face amounts: Varies; typically $10,000–$100,000 per occurrence
• Term: Annual, renewable
• Who can claim: Clients who suffered losses from employee dishonesty

Maintenance Bond

Guarantees that a contractor will correct defects in completed work during a specified warranty period after project completion. Sometimes included in a performance bond; sometimes issued separately on larger projects.

• Who requires it: Project owners on large construction projects; some public works contracts
• Face amounts: Typically a percentage of the original contract value
• Term: The warranty/maintenance period (typically 1–2 years post-completion)

Quick Reference: Which Bond Do You Need?