ABA Family Legal Guide

Home Ownership

Remodeling

Hiring a Contractor

Why are bonds important?

Dealing with a contractor who's bonded provides important protections for you. Be aware that there are two kinds of bonds involved in construction. The phrase fully insured and bonded generally means the contractor's insurance coverage protects against employee theft, vandalism, or negligence. Especially if you have valuables to consider, ask to see a certificate or letter certifying such a policy.

The other kind is a performance bond, an insurance company's assurance that the contractor can finish the job as stated in the contract. If the contractor defaults, the insurance company will pay another contractor to complete the work. Contractors must take out a separate bond for each job, so bonds are usually limited to jobs of $25,000 or more, and contractors pass on the cost to the owner. It is an expensive proposition, up to 10 percent of the contract price for a residential swimming pool; but a contractor who has been approved by a bonding company is a very good risk. You're the one who decides whether to require (and pay for) a bond.

Be aware that in some areas it is so expensive and difficult for contractors to purchase a performance bond that it may be impossible to find a contractor who has one.