Arizona Construction Bonds

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Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.

What Are They?

Arizona construction bonds serve two broad purposes. They help ensure that contractors working in the state operate with integrity, in accordance with state and local regulations and building codes. They also protect licensing authorities, project owners, and the public against financial losses from contractors’ unlawful or unethical business conduct by providing a way for injured parties to be compensated for monetary damages.

Construction bonds may be required at the state and/or local level. They also may be required by public or private project owners.

What Arizona Construction Bonds May Be Needed?

In Arizona, the most commonly required construction bonds include 

  • Contractor license bonds, 
  • Bid bonds, 
  • Performance bonds, 
  • Payment bonds, 
  • Maintenance bonds, 
  • Subdivision improvement bonds. 

Other bonds may also be required depending on the project type and location, such as right of way bonds or solar decommissioning bonds

How Do They Work?

There are three parties to every Arizona construction bond: 

  • the “obligee” that requires the bond, 
  • the “principal” (contractor) required to obtain the bond and is legally obligated to pay all valid claims, and 
  • the “surety” that guarantees the payment of claims by agreeing to lend the principal the funds to pay a claim.

Although the legal obligation to pay valid claims belongs exclusively to the principal, the surety typically will pay a claim initially on the principal’s behalf. The principal must subsequently repay the surety. The surety can take legal action against a principal that fails to repay the debt. 

What Do They Cost?

The annual premium for an Arizona construction bond is calculated by multiplying the required bond amount established by the obligee and the premium rate assigned to the principal through underwriting. The underwriting process assesses the risk of the principal not repaying the surety for claims paid on the principal’s behalf.  

A high personal credit score is perceived as a sign of low risk and earns the principal a low premium rate. Conversely, a low credit score indicates a higher risk level, which warrants a higher premium rate. 

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.

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