If you want to work as a general contractor, electrical, landscape, or irrigation contractor in the great state of North Carolina, then you have to obtain a North Carolina contractor license bond. A contractor license bond is a surety bond that a governing agency (usually a state or local municipality) requires for becoming a licensed contractor. These bonds protect the general public by requiring contractors to comply with the law and industry-specific regulations.

What is a North Carolina Contractor License Bond?

As mentioned briefly, certain professionals in North Carolina need to secure a North Carolina contractor license bond in order to achieve the professional licensing that allows them to do their jobs. 

Often required by government agencies, a contractor license bond helps to ensure that contractors are not doing something they really shouldn’t — like failing to complete a project or committing fraud. 

The following job types need to apply for select professional licenses that require a North Carolina contractor license bond in order to be approved for their license:

• General contractors

• Electrical contractors

• Landscape contractors

• Irrigation contractors

Essentially, a North Carolina contractor license bond guarantees that contractors will comply with the provisions of the North Carolina Administrative Code and the North Carolina General Statutes Chapters that apply to them.

North Carolina contractor license bonds have varying required bond amounts and the required amount depends on the type of license they are seeking. 

• General contractors: $175,000 bond for a limited license, $500,000 bond for an intermediate license, and $1,000,000 bond for an unlimited license

• Electrical contractors: $50,000 for an intermediate electrical contractor and $130,000 for an unlimited electrical contractor

• Landscape and irrigation contractors: $10,000 bond

How North Carolina Contractor License Bonds Work

As with any type of surety bond, a North Carolina contractor license bond involves three parties:

• Principal. The contractor that needs the bond.

• Obligee. The government agency that requires the bond.

• Surety. The company that issues the surety bond and guarantees the obligee complies with regulations.

Governing agencies enforce contractor license bonds as a way to protect the public against bad or unethical contractors. When the surety issues a surety bond, they are guaranteeing that the contractor will follow all laws and regulations, or risk penalties. 

Examples of covered incidents under a contractor license bond include:

• Failure to complete work

• Not finishing the work on time

• Exceeding the agreed-upon budget

• Violating building codes

• Damage to property

• Failure to properly compensate eligible employees

• Violations of state license laws

• Fraud

• Poor workmanship

So, what happens when a claim is filed against a North Carolina contractor license bond? If a client feels their contractor violated their contract or a law, they can file a claim with the state agency that required the bond (the obligee). Unlike other types of surety bonds, two parties are involved in the investigation — the state agency for claims against your license and the surety for claims against the bond. Both matters are usually related, but the investigations are done independently. 

If the claim is found to be false, then the principal is in the clear and no further action is needed on their part. But if the claim is true, then the surety reimburses the claimant for losses and damages up to the bonded amount.

Keep in mind that a surety bond does not function like general liability insurance. The surety pays the claimant on the principal’s behalf, but they’re still financially liable. Any amount the surety paid out to the claimant becomes a debt that they owe the surety. For example, if the surety paid $10,000 on an approved claim, the principal will owe the surety $10,000.

What Is an Example of a North Carolina Contractor License Bond?

Let’s look at an example of how a North Carolina contractor license bond works. Let’s say John Smith (the homeowner) who just bought a house in Raleigh agrees to work with Tom Jones (the construction contractor) to make some home improvements. Two months in, Tom the contractor stops showing up to complete the project, doesn’t respond to John’s calls, and never finishes the work. At this point, John decides to file a claim against the North Carolina contractor license bond and the surety approves the claim, reimbursing John for their financial loss.

A claim can also occur within the contractor’s company. For example, if a contractor’s employee is entitled to fringe benefits but the company refuses to pay. The employee files a claim because their employer is violating labor laws. The surety approves the claim and the employee receives financial recompense.

How Much Does a Contractor License Bond Cost?

Premium on contractor license bonds can range from 0.5% to 10% of the bond amount. Several factors can determine the premium cost, such as:

• Industry. High-risk professions, like roofing contractors, can carry higher premiums.

• Credit score. Lower credit scores typically lead to higher premiums.

• Business qualifications. Time in business and the quality of your business finances can affect how much you will pay.