Montana Contractor License Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Montana contractor license bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

 

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What Is a Contractor License Bond?

There is no statewide requirement for contractor license bonds in Montana. When the state or a municipal entity requires a contractor to furnish a license or permit bond, the purpose is to provide some financial protection for the licensing authority and the public. The bond is a way for parties experiencing a financial loss due to a licensed contractor’s unlawful or unethical actions to be compensated for monetary damages.

 

Who Needs One?

To operate legally in Montana, all construction contractors with employees need to register with the Montana Department of Labor & Industry, but registration does not carry a bonding requirement. The only state-licensed contractors needing a license bond in Montana are well water contractors licensed by the Montana Board of Water Well Contractors. However, some municipalities have their own contractor licensing and bonding requirements.

How Does a Contractor License Bond Work?

Every contractor license bond issued in Montana is a legally binding contract among three parties:

  • The “obligee” (the licensing authority requiring the bond)
  • The “principal” (the contractor purchasing the bond)
  • The “surety” (the bond’s guarantor)

The terms of the surety bond agreement obligate the principal to abide by certain regulations, such as local building codes. Any violation of those regulations that causes a financial loss can result in the injured party filing a claim for damages.

If the surety’s investigation establishes the claim as valid, the principal is legally obligated to pay it, up to the full amount of the bond. Unless the contractor can pay the claim immediately, the surety that has guaranteed the bond will step in and pay it on the contractor’s behalf. That payment creates a debt that the principal must then repay to the surety. It’s common for the surety to establish a due date and repayment schedule that gives the principal some time to repay the debt. The surety has the right to take legal action against a principal who fails to repay the debt in full.

How Much Does It Cost?

The annual premium cost of a Montana contractor license bond (in fact, for nearly any construction surety bond) is the product of multiplying the required bond amount established by the obligee and the premium rate set by the surety through underwriting. The underwriting process is an assessment of the risk the surety assumes in guaranteeing the bond—specifically, the risk of not being repaid for claims paid on the principal’s behalf.

The premium rate reflects the underwriter’s assessment of the principal’s creditworthiness, based largely on the principal’s personal credit score. There is an inverse relationship between credit score and risk. The higher the credit score, the lower the risk, while a low credit score is correlated with higher risk. A well-qualified, lower-risk principal typically pays a premium rate between 1% and 3%. A higher-risk principal will pay a higher premium rate to offset the increased risk to the surety.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Montana contractor license bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

 

CONTACT US FOR A

FREE CONSTRUCTION BOND QUOTE

What Is a Contractor License Bond?

There is no statewide requirement for contractor license bonds in Montana. When the state or a municipal entity requires a contractor to furnish a license or permit bond, the purpose is to provide some financial protection for the licensing authority and the public. The bond is a way for parties experiencing a financial loss due to a licensed contractor’s unlawful or unethical actions to be compensated for monetary damages.

 

To operate legally in Montana, all construction contractors with employees need to register with the Montana Department of Labor & Industry, but registration does not carry a bonding requirement. The only state-licensed contractors needing a license bond in Montana are well water contractors licensed by the Montana Board of Water Well Contractors. However, some municipalities have their own contractor licensing and bonding requirements.

Every contractor license bond issued in Montana is a legally binding contract among three parties:

  • The “obligee” (the licensing authority requiring the bond)
  • The “principal” (the contractor purchasing the bond)
  • The “surety” (the bond’s guarantor)

The terms of the surety bond agreement obligate the principal to abide by certain regulations, such as local building codes. Any violation of those regulations that causes a financial loss can result in the injured party filing a claim for damages.

If the surety’s investigation establishes the claim as valid, the principal is legally obligated to pay it, up to the full amount of the bond. Unless the contractor can pay the claim immediately, the surety that has guaranteed the bond will step in and pay it on the contractor’s behalf. That payment creates a debt that the principal must then repay to the surety. It’s common for the surety to establish a due date and repayment schedule that gives the principal some time to repay the debt. The surety has the right to take legal action against a principal who fails to repay the debt in full.

The annual premium cost of a Montana contractor license bond (in fact, for nearly any construction surety bond) is the product of multiplying the required bond amount established by the obligee and the premium rate set by the surety through underwriting. The underwriting process is an assessment of the risk the surety assumes in guaranteeing the bond—specifically, the risk of not being repaid for claims paid on the principal’s behalf.

The premium rate reflects the underwriter’s assessment of the principal’s creditworthiness, based largely on the principal’s personal credit score. There is an inverse relationship between credit score and risk. The higher the credit score, the lower the risk, while a low credit score is correlated with higher risk. A well-qualified, lower-risk principal typically pays a premium rate between 1% and 3%. A higher-risk principal will pay a higher premium rate to offset the increased risk to the surety.

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