License and permit bonds guarantee that the contractor has fulfilled local and state requirements in order to obtain a license or permit.

Contract bonds guarantee to the homeowner that the contractor will complete the work to a given industry standard of quality and that s/he will pay all suppliers, subcontractors and workers on the job. It guarantees that the contractor will fulfill the terms and requirements of a specific contract.

There are four main kinds of contract bonds:

>> A bid bond provides assurance that the contractor has a guarantee from a bonding company that the bid on the project is reliable and that the job will be contracted at the price bid.

>> A performance bond is a guarantee from a bonding company that the contractor will complete the work according to the terms of the contract (including stipulations of time, price and specified materials).

>> A payment bond is a guarantee that the contractor will pay suppliers, workers and subcontractors. If the contractor fails to do so, the bonding company will pay to complete the job and then obtain payment from the contractor’s assets.

>> A supply bond is a guarantee to the contractor from suppliers and subcontractors that they will supply the materials or complete the work stated in the contract.

A homeowner might also purchase a payment bond guaranteeing payment of the entire price stated for the completion of the work outlined in the contract. While contract bonds for construction and remodeling provide protection from various obvious risks, two considerations should be given due attention by homeowners.

>  First, once a contract bond is signed, it cannot be broken.

>  Second, if the contractor defaults and the surety assumes responsibility for finishing the job, it is the surety and not the homeowner who will select the contractor to finish the work.