Bonding in Colorado

A surety bond is a 3-party promise. The contractor (principal) pays a surety company for a bond that a customer, subcontractor, or a public body (obligee) can draw against if the contractor breaks the rules the bond covers. The surety pays valid claims up to the face value. The contractor then owes the surety for what the surety paid out. A bond protects the public. It is not insurance for the contractor. Colorado is different from most Mountain West states. Colorado does not require a statewide license bond for individual electricians or plumbers, because the Department of Regulatory Agencies (DORA) licenses individual tradespeople by wireman or plumber class rather than by general contractor. Bonds in Colorado show up in 3 distinct places. Keep them separate. 1. Municipal contractor registration bonds. Most Colorado cities and counties require an electrical, plumbing, or general contractor operating inside the jurisdiction to register with the local building department and to post a surety bond that runs to the jurisdiction. Amounts vary by city. Examples published on city sites include Denver contractor-licensing bonds set by class and Colorado Springs / PPRBD bond requirements by contractor class. Verify the current amount and form with the city or regional building department before you post. Sources: Denver Community Planning and Development (https://www.denvergov.org/Government/Agencies-Departments-Offices/Agencies-Departments-Offices-Directory/Community-Planning-and-Development) and Pikes Peak Regional Building Department (https://www.pprbd.org/). 2. Public works payment and performance bonds (Colorado's Little Miller Act, CRS 38-26-105 and 38-26-106). Under Colorado Revised Statutes Sections 38-26-105 and 38-26-106 (https://leg.colorado.gov/), the contractor on a public works contract with the state, a political subdivision, or a school district must execute a performance bond and a payment bond in an amount that at least equals the contract price before starting work. The performance bond protects the public body if the contractor fails to complete. The payment bond protects subcontractors, suppliers, and laborers. Both bonds must be written by a surety authorized in Colorado. These are project bonds, not license bonds. 3. Mechanic's-lien bonds (CRS Title 38, Article 22). A contractor or property owner can post a bond under CRS Title 38 Article 22 (https://leg.colorado.gov/) to release a mechanic's lien from a property. The claim attaches to the bond instead of the real estate. This is a project-specific lien tool, not a license bond. Premium math. A surety charges an annual premium, typically 1 percent to 3 percent of the bond face value for a contractor with strong credit and no prior claims. Weaker credit, tax liens, prior surety losses, or a new business can push the rate to 5 percent to 10 percent or more. A $10,000 municipal license bond at 2 percent is $200 per year. A $25,000 bond at 2.5 percent is $625 per year. Project payment and performance bonds on public works are priced per job, usually 0.5 percent to 3 percent of the contract price. What claims look like. For a municipal license bond, a homeowner or public authority first files a complaint with the city licensing or building department. If the city sustains the complaint or a court enters a judgment within the bond's coverage, the claimant can seek recovery from the bond. The surety pays valid claims, then pursues the contractor for reimbursement. Bond, insurance, and workers' compensation are separate requirements. A Colorado contractor carries any applicable municipal license bond, general liability insurance at whatever level the work and contract require, and workers' compensation as required by Colorado law for nearly all employees. Confirm each requirement against the current municipal rule and your contract before assuming compliance.