By purchasing a NJ surety bond a contracting company becomes bonded, meaning that you, as a customer, are guaranteed services offered will be met as specified or you will be compensated by the surety company. This is a three-part agreement between the customer, (a.k.a. the “obligee”), your contractor, (a.k.a. the “principal”), and the surety company that issues the bond. If the contractor doesn’t complete the job for any reason, you can report the problem to the surety company and they will furnish you with the necessary settlement amount.
Three main types of contractor bonds available
Surety bonds have a wide variety of applications in the business world, but only a few types are relevant when dealing with home improvement contractors, including:
- Performance and completion bonds
These bonds help to ensure the work will be performed and completed to your satisfaction, as outlined in the contract. If the contractor mishandles the job, fails to complete the work, or performs work below what was expected, you’re covered. You should only hire a contractor who furnishes these bonds for any building job.
- Payment bonds
These bonds are only necessary if your contractor is making major outlays to other suppliers and contractors. These bonds must be in place in order to protect you against claims from subcontractors. For example, if the contractor you hired doesn’t pay the supplier who sold him materials to complete the job, the supplier could come after you even if there wasn’t a direct contract with you. Insisting that the contractor have a payment bond ensures that the subcontractor will only have recourse against the contractor.
- License and permit bonds
If state authorities require licenses or permits to do business, they may require contractors to purchase these particular types of bonds. Provisions may vary from one location to another, so it might be a good idea to know what the provisions are in your area.
It can be comforting to know that having a license automatically means a contractor is bonded, but don’t assume that these bonds will be enough: They may not have a high enough financial ceiling to cover the job and they also might not include a payment bond for subcontractors.
Having a contractor who has a NJ surety bond means that you, as the customer, have the added security of knowing you won’t be left holding the bag when things don’t get done to your expectations.