An Arizona Contractor License Bond is a surety bond that is required by the state before your contractor license can be issued. The purpose of the license bond is to protect the interests of your customers and to make sure all applicable regulations and laws are upheld. The Principal on these license bonds is the Contractor. The Surety is the bond company making the guarantee and the Obligee is The State of Arizona.
Specifically, the Arizona contractor license bond provides assurance that you will follow all the provisions that have been outlined in the Arizona Revised Statutes. If you fail to do this, it can result in a claim being filed against your license bond. Each valid clam must be reimbursed up to the license bond’s total penal sum.
What Bond Amount is Needed?
This depends on what type of work the contractor is performing and what their annual gross volume is anticipated to be. The table below summarizes the Arizona license bond requirements for each contractor classification and estimated revenue.
Who Should Get an Arizona Contractor License Bond?
The actual license bonding requirements are applicable to an array of different contractors. If you are not sure if this surety bond is required, you can contact the Arizona Registrar of Contractors to find out for sure.
Generally, both commercial and residential contractors will require a license bond in Arizona. If you work in both areas, you are going to have to get two separate licenses. That also means you need two individual contractor license bonds as well. The requirement from the State Registrar reads:
“Any business which contracts or offers to contract to build, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, railroad, excavation or other structure, development or improvement, or to do any part of the work must be a licensed contractor.
Also included in work requiring a license is the erection of scaffolding, connections to utility service lines, metering devices and sewer lines, mechanical or structural service to a structure or improvement and any other work in connection with the project.
“Contractor” includes subcontractors, floor covering contractors, hardscape contractors and consultants representing themselves as having the ability to supervise or manage a construction project for the benefit of the property owner.
Supervision or management includes hiring and firing of specialty contractors, scheduling of work on the project, and selection and purchasing of construction material.
Contractors must be properly licensed before submitting bids.” More can be read about the license requirements here.
How Do You Get an Arizona Contractor License Bond?
These Arizona Contractor License Bonds are easily obtainable for most contractors. Underwriting is usually just a credit check on the primary owners. If credit is acceptable, these Arizona Contractor License Bonds can normally be issued instantly in a matter of minutes. Contractors should expect to give their names, address, social security number and license or application number if they have it. Contractors can also just fill out our simple application found here.
Arizona Contractor License Bonds Costs
The cost of your Contractor License Bond mostly depends on the credit of the primary owner. Standard rates are about 1% with preferred rates being less than 0.5%. Contractors also receive a discount for purchasing multiple years upfront. Discounts can be 20% – 40%, depending on the surety bond company.
Is it Possible to Get an Arizona Contractors License Bond if you Have Bad Credit?
There is typically a way for all contractors to obtain license bonds. Contractors with lower credit scores can expect to pay more than the standard rates, but there are plenty of options. MG Surety Bonds works with 25+ surety bond companies so that we can find the best rate for all clients.
How Long is the Bond Valid?
Arizona Contractor License Bonds must be continuous. That means the license bond must stay in force as long as you are performing work. The surety bond company issuing the license bond can cancel the bond with thirty days written notice prior to the cancellation date. They must send this notice to both the Principal on the License Bond (the Contractor) and the Arizona Registrar of Contractors to be valid. If this happens, a contractor needs to replace the license bond with a new bond or their license will be suspended.
Becoming a Contractor in the State of Arizona
In addition to obtaining your contractor license bond, you will need to take the steps below:
- Identify a Qualifying Party
- Meet the Experience Requirements
- Pass Exams
- Submit to Background Checks
- Form a Legal Entity
- Pay the Fees
- Provide a Government ID
- Complete and Submit an Application
Keep in mind that an Arizona Contractor’s License Bond is issued on the principle of indemnity. That means if a valid claim is made, the surety bond company will seek reimbursement from the contractor for any amounts they pay out. Fortunately, the surety bond company must investigate and make sure the bond claim is valid.
Verify the Bond
Unfortunately, fraud does existing in the surety bond industry. A surety bond company must be approved by the state to be valid. The list of approved companies can be found here. We also encourage both contractors and consumer to verify the bond to make sure it is valid. You can read more about how to do that here.
Alternative to Getting a Contractor License Bond
Arizona will allow a contractor to post cash instead of a surety bond. However, there are some major drawbacks to this strategy. First of all, it ties up a contractor’s resources that could be used for other things. Secondly, a non valid claim may be paid. This is a major reason why a contractor may want to post a surety bond instead of cash or an irrevocable letter of credit. You can read more about surety bonds vs letters of credit here.
Other Surety Bonds May be Needed
Keep in mind that a contractor license bond only allows a contractor to obtain their license and operate. Other types of construction surety bonds may be needed such as Bid Bonds, Performance Bonds and Payment Bonds. These bonds are important to contractor but have different guarantees, costs and underwriting requirements. We are happy to assist Arizona contractors with all of their surety bond needs.
Getting an Arizona Contractor License Bond should difficult or confusing. Please contact MG Surety Bonds anytime and we would be happy to assist you.