Who Needs an Indiana Contractor�s License?
There is no central source of information that will tell you whether or not you need to obtain a license to operate legally as a contractor in Indiana. Some licensing is done at the city level, while the county issues licenses for contractors working in other situations. You�ll need to check with your local government to find out what, if any, licensing requirements exist.
The Licensing Process
Given the number of local agencies regulating the licensing of contractors, there is no one common process. Each jurisdiction has its own rules as to which types of licenses are issued to which types of contractors. Each jurisdiction has its own licensing requirements, procedures, and fees as well.
There are some common elements in many local licensing processes, such as a requirement for worker�s compensation and liability insurance and for the purchase of a surety bond. The details differ, however. For example, applicants for licensing as a contractor in Indianapolis must purchase a $10,000 surety bond, while in Evansville, which licenses all contractors working in Vanderburgh County, a $15,000 bond is required.
Why Is a Surety Bond Required?
A contractor�s surety bond is provides protection for project owners and others who suffer a financial loss because a contractor defaults on a contract and fails to complete a job or acts in an unlawful or unethical manner. The bond provides funds to compensate any injured party that files a legitimate claim against the bond. The fact that a contractor has money at stake in the form of a surety bond is a powerful incentive to conduct business legally and honestly.
How Does a Contractor�s Surety Bond Work?
There are three parties to a contractor�s license bond:
- The government entity that requires the bond and establishes the required bond amount. This is the licensing authority, known as the obligee.
- The contractor required to purchase the bond as a condition of licensing, who is known as the bond’s principal.
- The firm that underwrites and issues the bond, known as the surety.
When a party who incurs a financial loss because of the principal�s actions files a claim against the contractor�s bond, the surety will conduct an investigation to establish the validity of the claim. The legal responsibility for paying valid claims rests entirely with the principal.
However, it�s not always possible for the principal to pay a claim immediately. Often, the surety will step up and pay a claim on behalf of the principal, essentially lending the needed funds to the principal. The indemnification clause in every surety bond contract gives the principal the right to be reimbursed by the principal for all claims paid on the principal�s behalf.
What Does It Cost?
While the obligee establishes the required bond amount, the surety determines the premium rate on a case-by-case basis. What a given principal will pay to obtain a bond is calculated by multiplying the required bond amount by the premium rate.
The surety�s primary consideration in setting the premium rate for a given principal is the applicant�s creditworthiness. A contractor�s personal credit score is a good indication of the level of risk the surety is assuming. A principal with good credit is less likely to incur claims and more likely to reimburse the surety for any claims paid in advance.
If your credit score is good, you could pay an annual premium that is as little as 1% of the required bond amount. If your credit is not good, you should still be able to get bonded but will pay a higher premium rate.
What Are the Costs of Surety Bonds for Indiana Contractors?
Our experienced professionals stand ready to help you get the surety bond you need to become a licensed contractor in Indiana. Apply online today, or give us a call to discuss your bonding needs.