HVAC contractors need to obtain a surety bond in order to get licensed.
The importance of HVAC technicians in construction, and the elaborate nature of their installations, requires them to keep a high performance standard. Your skillfulness and ability to complete work according to that standard is ensured by your having a valid HVAC license. That you will successfully complete the job, on the other hand, is ensured by your surety bond, which you need to obtain even before submitting your licensing application.
Not sure exactly what the HVAC license bond is? Look no further — here are the basics:
What Is a HVAC Contractor License Bond?
All contractor businesses are usually required to get bonded before obtaining a license. You can go through all of the other steps — graduating from a HVAC educational program, getting hours on the job, sitting for an exam — but without obtaining a HVAC Contractor License bond, the state will still consider it illegal for you to work on any installation or maintenance project.
Now that you know why you need the bond, you might be wondering what exactly it does. The HVAC Contractor License Bond guarantees that you will deliver on all the points in your contractual agreement. This includes the agreement you’ve made with your clients and the one with your subcontractors.
The most important thing to understand is that the surety bond does not serve as an insurance for you or your business. It ensures you will abide by the laws of your state, city or municipality when on the job.
If anything should happen, and you fail to meet the deliverables you have contractually agreed to, then the client has the right to file a claim against you and be compensated for their losses. This compensation will initially be handled by the surety bond company that issued your bond.
What Happens if a Claim Is Filed against My Business?
Claims get filed all the time, and sometimes even regardless of whether you are at fault or not. A client can file a claim against you for installation malfunction, if the project is not finished on time or if it turns out to be more costly than what was agreed upon. The list of reasons can go on for days!
How this usually plays out is that your client files the claim explaining what financial damage he/she has suffered due to your breach of contract. The claim is sent to your surety bond company, which studies the case and can either directly compensate the client or, if it appears that you have been wrongfully accused, they will help you fight the claim.
After the claim is accepted and your client is compensated, your surety bond company will get in touch with you and ask you to pay them back in full.
How Much Does a HVAC Contractor License Bond Cost?
Contractors only need to pay a percentage of the surety bond requirement.
The cost of a HVAC Contractor License Bond varies from person to person and agency to agency. You can get a personal estimate by contacting a surety bond agency that can give you a fast quote. Surety bond agencies have access to different markets so pricing can vary widely. A good agency is one who is knowledgeable about the bond you need and that can assist you with the bonding process in general.
The main variable affecting the cost of your surety bond is the state in which you plan on working. The HVAC Contractor License bond is a state regulated requirement which means every state can require a different bond amount. In some states, the bond requirement may be based on your projected annual revenue, and in others it can be a flat amount as high as $20,000.
However, you do not need to pay the bond requirement in full. You only need to pay a percentage, which is called a premium. The premium amount is mostly based on your personal credit score. The better your score, the lower the rate you need to pay.
Most good surety bond agencies will ask you to pay between 1% and 3% if you have a stellar credit score. If you have bad credit, you are considered to be a bigger liability so the premium rate you have to pay will certainly be higher. It can reach up to 15% of the bond requirement.
In short, the HVAC Contractor License Bond is the most important step to the licensing process you will need to complete and you will not be able to legally work without it. It serves as a form of insurance for your clients, guaranteeing that you are a legitimate contractor who will deliver on your contractual agreements and operate in compliance with all state laws.
Are you a HVAC Contractor with surety bond questions? Ask us anything in the comments below!
About the Author
Boryana Gramatikova is a recent University of Westminster graduate with an MA in Broadcast Journalism. She has vast experience in blogging on HVAC contractor license bonds and everything surety bond-related. She is regular contributor on the JW Surety Bonds blog.
First Photo credit: PEO, Assembled Chemical Weapons Alternatives / Foter / Creative Commons Attribution 2.0 Generic (CC BY 2.0)
Second Photo credit: 401(K) 2013 / Foter / Creative Commons Attribution-ShareAlike 2.0 Generic (CC BY-SA 2.0)
Quote from SCLB web site: ” It is illegal for a contractor to advertise contractor’s bond to the public.” Based on this wording, it would appear that the public is not the intended beneficiary of the contractor’s bond. Further, I seriously doubt that a bonding company would actually pay out on a claim without notifying the contractor first and hearing his/her side of the story, as you article suggests. Further more, I also doubt that a bonding company would actually pay out on any claim without the claimant first obtaining a legal judgment. IMHO