If you are a contractor who is involved in pool construction or making other outdoor site improvements, you might be required to obtain a contractor’s license and a license bond. Swimming pool contractors in some states are required to obtain specialized licenses, and bonds are frequently required as a condition of licensing. For example, California requires swimming pool contractors to obtain a swimming pool contractor license, which carries a bonding requirement as a licensing condition. Other states, including Florida and Texas, also require bonds for pool contractors who perform electrical work on pumps and other components of pool installation.
Even if your state does not require you to obtain a specialized license for pool construction work, you might have to get a general contractor’s license and post a bond to perform work above a certain amount. In addition to license bonds, there are other types of contractor bonds that you might need based on the size of a project or the requirements of the project owner. Here is some information about contractor bonds for pool contractors and those who perform work on other outdoor improvements.
What Is a Surety Bond?
A surety bond is a legally binding agreement between the following parties:
• Principal – The individual required to post a bond
• Obligee – The party, which might be a governmental licensing authority or private project owner, that requires the bond
• Surety – The bond company that approves and issues a bond as a guarantee the principal will comply with its legal and contractual obligations
About Surety Bonds
Surety bonds are not a form of insurance. Instead, they protect the obligee and the public against potential misconduct on the part of the principal. When a bond company approves a surety application, the principal must sign an indemnity agreement through which it agrees to hold the surety harmless in the event of a filed bond claim and loss. Ultimately, the principal is the party who will be responsible for paying valid bond claims that might be filed.
There are many different types of surety bonds available to pool contractors.
Types of Bonds
License bonds are bonds that might be required as a licensing condition before a contractor can secure a license. These bonds might be required by a state licensing body or by a city or county before a contractor can obtain a license or certificate to perform work in the jurisdiction.
Many contractors who perform work on outdoor improvements or construct pools might also be required to post contractor bonds. A contractor bond is a type of surety bond that guarantees the contractor will perform work that meets the provisions called for in a contract.
3 Most Common Bonds
These bonds might be required for public projects valued at $100,000 or more. Many private project owners also require bonds before they will enter into contracts with pool contractors and those who will perform work on other outdoor improvements. The following three types of contractor bonds are common:
• Bid bond – A bond that might be required as a condition of bidding on a project that guarantees the winning bidder will follow through and perform the contract at the bid price even if the contractor forgot to include something in the bid.
• Performance bond – A bond that might be required by a public or private project owner that guarantees the contractor will perform according to the provisions called for under the contract and will not complete substandard work.
• Payment bond – A bond that guarantees the general contractor will pay its subcontractors and suppliers for their labor and materials that protects the subcontractors and suppliers as well as the private project owner. Payment bonds protect private project owners from potential mechanic’s liens that might otherwise be filed by parties that have not received timely payments for their work from the general contractor.
Public-funded projects worth more than a threshold amount might require contractors to post all three of these types of bonds since they guarantee the completion of the project to specifications, prequalify contractors before they can submit bids, and provide payment protection.
Savvy private project owners likewise might require contractors to post performance and payment bonds to guarantee the contractors they choose will perform the work as promised and will pay their subcontractors and suppliers.
Unsure about surety bonds? Many contractors wonder how to go about getting bonded.
How Do You Get Bonded?
To get bonded, you can apply for the specific types of bonds you need by applying to a bond company. The surety bonding process involves an extension of credit from the bond company to the contractor, so the application will be sent through an underwriting process. The factors that a surety will consider to determine whether or not to approve a bond application include the applicant’s credit, business experience, working capital, stability, reputation, and others. Evaluating these factors helps the surety determine the degree of risk it would face if it approved the bond application.
If you have a great credit score, substantial experience, strong working capital, and a good reputation, the surety company will likely determine you pose little risk and provide you with a bond quote of as little as 1% of your required bond amount. For example, if you are required to post a $25,000 surety bond, you won’t have to pay the full amount of the bond. If you are quoted 1%, you will instead need to pay 1% of that amount of $250. By contrast, if you have poor credit, your application might be denied, or the surety might provide you with a higher quote of up to 10%. In that case, you would have to pay $2,500 to secure your bond.
Bonds are not permanent. Instead, they must be renewed. Once you have posted the bonds you need, you should make sure to pay attention to when they expire and apply to renew them before they do. If you avoid bond claims and maintain good credit, you can anticipate continuing to receive low bond quotes. If you had to post a larger bond premium because of a low credit score but have worked to build your credit since you originally posted your bond, you might find that you receive a better rate when it’s time to renew.
Surety bonds are a common requirement for contractors who construct pools or complete other outdoor improvements. Making sure that you understand your requirements and that you always comply with the law and your contractual obligations can help you secure better rates and also build a strong business reputation.