Question: How do I go about bonding...

Question: How do I go about bonding my contractor?

Answer: You don’t. A bond is a financial guarantee similar to a loan from a bank, and is provided by a licensed insurance company to guarantee the terms of a contract.

This performance bond will guarantee that the work you are having done is completed under terms of the conract. If the contractor does not complete the project, the bonding company is liable to the penal sum of the bond (contract price) to either reimburse you or to complete the project according to the conditions of the contractual agreement.

In case a contractor abandons an uncompleted project, the bonding company will usually ask you to get three or four bids for the work, and pay you the amount required to complete the project by another contractor.

The contractor must obtain the bond and complete an extensive financial statement and history of his organization before he may qualify for it. The usual cost for performance bonds on home improvements ranges from 1 1/2% to 3% of the project bid.

Many contractors will tell you that they are bonded. However, the bond they are referring to is a state contractors license bond, which is for $5,000 ($10,000 for swimming pool contractors). The license bond basically covers wages, fringe benefits, material deliveries to the job site and fraud. It is a very limited bond and usually not applicable to homeowners’ claims.

In other instances, contractors who claim to be bonded are talking about fiduciary bonds, such as bonds against theft or embezzlement by employees, which does not apply specifically to your situation.

If you require a bond, you should receive a copy of the bond before the job begins, and you should read the document thoroughly.

Fontaine is president of the Western Regional Master Builders Assn. and a director of the American Building Contractors Assn. He will answer questions concerning home improvements. Phone 213/653-4084 or write him at 6404 Wilshire Blvd., Suite 850, Los Angeles 90048-5510.