Who Needs a Texas Contractor�s License?
In Texas, only specialty contractors�HVAC, plumbing, and electrical�are licensed at the state level. Licensing occurs through the Texas Department of Licensing and Regulation. Contractors doing new construction or improvements to existing properties are not subject to any statewide licensing requirement.
There are, however, a number of municipalities in Texas that do require construction contractors to obtain a local license or permit.
What Does the Licensing Process Involve?
Local processes for licensing construction contractors in Texas vary greatly from one municipality to the next. Some cities have much more stringent license and permit requirements than others. The best way to find out what licenses or permits you may need to obtain for the area where you plan to conduct business is to check with the local city governments.
Many local governments require contractors to provide proof of their financial resources as a way to ensure their solvency before they will issue a license or permit. In many cases, this requirement can be satisfied by purchasing a Texas contractor�s license surety bond.
Why is a Surety Bond Required?
The purpose of a contractor�s license bond is to ensure that money will be available to compensate any party that suffers a financial loss resulting from the contractor’s unlawful or unethical conduct. The surety bond agreement is a legally binding contract between the city, the contractor, and the surety bond company. The bond identifies the laws, rules, and regulations the contractor must abide by.
How Does The Bond Work?
Each party to a surety bond agreement has a specific role and legal responsibilities:
- The municipality requiring the bond is called the �obligee.�
- The contractor required to purchase the bond is the �principal.�
- The company issuing the bond is the �surety.�
The obligee establishes the required amount of the bond and the conduct required of the principal. The principal has sole legal responsibility for paying claims against the bond. The surety guarantees that valid claims will be paid.
When a claim is filed against the bond, the surety will first investigate to make sure that the claim is valid. While the expectation is that the principal will pay any valid claim, that may not happen in a timely manner. When the principal doesn�t settle or pay the claim quickly, the surety will step in to pay it, but only as a temporary measure.
Surety bond agreements include an indemnification clause that holds the surety harmless. The principal is legally obligated to reimburse the surety for claims paid in advance on the principal�s behalf. The surety may take legal action to collect from the principal if necessary.
What Does The Bond Cost?
To determine the annual premium for a contractor�s license or permit surety bond, the surety multiplies the required bond amount by a premium rate the surety establishes for each applicant on a case-by-case basis. The primary factor in determining the premium rate is the contractor�s personal credit score. Applicants with good credit typically pay a premium rate of between 1% and 3%. Those with poor credit will likely pay a higher rate.
Get Bonded Today
If you need a surety bond in order to obtain a contractor�s license in Texas, apply online with Single Source Insurance today.