Arizona Contractor License Bonds

Arizona licenses contractors in several categories, each of which requires a contractor license bond in the appropriate amount. The bond amount (also known as the bond’s penal sum) varies by license type and by the anticipated gross volume of work performed annually. The penal sum requirements are summarized below.

Residential general contractors:

• gross annual volume below $750,000—$9,000 penal sum
• gross annual volume of $750,000 or more—$15,000 penal sum

Residential specialty contractors:

• gross annual volume below $375,000—$4,250 penal sum
• gross annual volume of $375,000 or more—$7,500 penal sum

Commercial general contractors (including general engineering contractors):

• gross annual volume of $150,000 to $500,000—$15,000 penal sum
• gross annual volume above $500,000 to $1 million—$25,000 penal sum
• gross annual volume above $1 million up to $5 million—$50,000 penal sum
• gross annual volume above $5 million up to $10 million—$75,000 penal sum

Commercial specialty contractors:

• gross annual volume below $150,000—$2,500 penal sum
• gross annual volume above $150,000 to $500,000—$15,000 penal sum
• gross annual volume above $500,000 to $1 million—$25,000 penal sum
• gross annual volume above $1 million up to $5 million—$50,000 penal sum
• gross annual volume above $5 million up to $10 million—$75,000 penal sum
• gross annual volume above $10 million

License bonds for contractors with a dual residential/commercial license combine the two applicable amounts. Additionally, all licensed residential contractors must pay an assessment into the Registrar’s residential recovery fund or post another bond in the amount of $200,000 to provide financial protection for residential project owners.

In the lingo of surety bonds, the licensing body requiring the bond, the Arizona Registrar of Contractors, is known as the bond’s obligee. The contractor purchasing the bond is called the principal. And the bond’s guarantor is referred to as the surety. An Arizona contractor license bond is legally binding on all three parties.

The obligee can file a claim against a contractor’s license bond to recover monetary damages as compensation for the financial harm caused by the principal’s violation of the terms of the license bond. The surety determines whether or not a particular claim is valid. The legal obligation to pay a valid claim rests entirely with the principal.

As the bond’s guarantor, the surety has agreed to lend the principal the funds needed to pay a valid claim if that becomes necessary. The surety will pay the claim initially, but the principal must repay the surety within a certain amount of time or the surety will take legal action to recover the debt.