Texas Contractor License Bonds

Texas does not require general contractors to be licensed at the state level, though there may be a local licensing and bonding requirement for general contractors, as well as for some specialty contractors working in certain municipalities. Some local jurisdictions requiring contractor license or permit bonds include: Amatillo, El Paso, Fort Worth, Galveston, Lubbock, Midland, Odessa, San Antonio, and Waco, among others. In those jurisdictions, a contractor license bond requires a contractor to operate in compliance with local regulations and building codes. Bond amounts vary from $5,000 to $25,000 by jurisdiction and type of contracting.

There are three parties to a Texas contractor license bond, which forms a legally binding contract among them. The local jurisdiction requiring the bond is known as the “obligee.” The contractor is the “principal.” And the bond’s guarantor is called the “surety.”

If the principal violates the terms of the surety bond, causing a financial loss to a project owner, the injured party can seek compensation by filing a claim against the bond. The surety will investigate the claim and determine whether it is valid. The principal is legally obligated to pay all valid claims up to the full amount of the bond.

The surety’s guarantee that valid claims will be paid is actually a guarantee to lend the principal the funds to pay them, if necessary. If the principal does not have the money to pay a valid claim right away, the surety will pay it initially, on the principal’s behalf. That payment is a loan to the principal, who must repay the debt to the surety. Not doing so within the allotted time can result in the surety taking legal action against the principal to recover the funds.