In Alabama, general contractors and certain specialty contractors must be licensed at the state level to work legally anywhere within the state. Learn how to get a general contractor�s license in Alabama with this simple guide.
Who Needs an Alabama Contractor�s License?
The contractors who must be licensed in the state of Alabama are listed below, along with their respective licensing bodies:
- General Contractors – Alabama Licensing Board for General Contractors
- Home Builders – Alabama Home Builders Licensure Board
- Electrical Contractors – Electrical Contractors Board
- Plumbers and Gas Fitters – Alabama Plumbers and Gas Fitters Examining Board
- HVAC Contractors – Alabama Board of Heating, Air Conditioning and Refrigeration Contractors
The Licensing Process
Each of these licensing boards has its own eligibility criteria and licensing process. There are some common requirements, however. For example, all contractors except for general contractors must pass a professional exam in their specialty. And all businesses must be properly registered with the state and have an employer identification number (EIN) or tax identification number (TIN).
In many states, contractors are required to obtain a contractor�s license surety bond as part of the licensing process. In Alabama, the bonding requirement applies only to HVAC contractors, and it is for a performance bond rather than a license bond. However, any contractor may be required by a particular project owner to purchase a surety bond in order to bid on a project or be awarded a contract.
Why Is a Surety Bond Required?
HVAC contractors must obtain a $15,000 performance bond, which functions in much the same way as a license bond. The purpose of the bond is to provide financial protection for project owners and the public against losses caused by the contractor�s unlawful or unethical actions. It incentivizes contractors to conduct business in accordance with all applicable regulations and industry standards.
How Does a Contractor�s Surety Bond Work?
The terms of a surety bond agreement spell out what the contractor must or must not do to remain in compliance. Violating those terms in a way that causes a financial loss gives the �victim� the right to file a claim against the bond and be compensated for that loss.
The first thing that happens when a claim is submitted is an investigation by the surety company that issued the bond. The goal is to determine whether or not the claim is valid and should be paid.
If the surety company deems that the claim is valid, the contractor is legally obligated to settle or pay it. If it�s not possible for the contractor to do that within a reasonable period of time, the surety typically will pay the claim and then seek reimbursement from the contractor. The surety company is held harmless by an indemnification clause contained in nearly all surety bond agreements.
Understanding the Costs of Obtaining a General Contractor License
The contractor pays an annual premium to obtain a surety bond. That premium is a small percentage of the required bond amount. The bond amount is established by the licensing authority or project owner requiring the contract. The premium rate is determined by the surety company at the time the bond is purchased by the contractor.
The primary factor considered in setting the premium rate for a given contractor is the individual�s personal credit score. The surety company uses this as an indicator of the risk that the contractor will be slow to reimburse the company for claims paid in advance on the contractor�s behalf. The better the applicant�s credit score, the lower the premium rate, which can be as low as 1% for contractors with good credit.
Get Bonded Today
Apply online or call Single Source Insurance today for a free consultation regarding your bonding needs.