What Is a Surety Bond and When Do You Need One in Connecticut?

Most Connecticut business owners hear the word “bond” for the first time in a sentence that ends with a deadline. The town needs a bond before it issues the excavation permit. The state needs a bond before it renews the dealer license. The school district’s bid package requires a bid bond with the proposal, and the proposal is due Friday. This guide explains what is actually being asked for, who needs one in Connecticut, and how to get one without losing the week.

A bond is a guarantee, not insurance

Insurance protects you. A surety bond protects someone else from you. That is the whole distinction, and it explains everything else about how bonds work.

Every bond has three parties. The principal is the business that has to get the bond. The obligee is whoever is requiring it: a state agency, a town, a project owner, a court. The surety is the company that guarantees, in writing, that the principal will meet a specific obligation. If the principal does not, the obligee can file a claim, the surety pays what is valid, and then the surety collects that money back from the principal.

That last part is what surprises people. When your liability insurer pays a claim, you do not repay them. When a surety pays a bond claim, you do, usually under a personal indemnity agreement you signed when the bond was issued. Bonds are underwritten like credit for exactly that reason.

Who needs a surety bond in Connecticut

Businesses with a licensed or permitted activity

Connecticut requires bonds as a condition of certain licenses and permits, and towns add their own. Common examples across Hartford County:

• Motor vehicle dealers and repairers licensed by the DMV
• Street opening and excavation permits from towns such as Farmington, Avon, West Hartford and Bristol, where the bond guarantees you will restore the road
• Certain trade and occupational licenses through the Department of Consumer Protection, depending on the occupation
• Fuel dealers, auctioneers, collection agencies, and other regulated occupations
• Sidewalk, driveway and site work permits on larger residential and commercial projects

These are usually called license and permit bonds. Amounts range from a few thousand dollars to $50,000 or more, and most are issued quickly on a short application.

Contractors bidding public work

Connecticut law requires a payment bond on public works contracts over $100,000 (CGS § 49-41), and most municipal and state bid packages require a bid bond with the proposal, followed by performance and payment bonds if you win. Private owners and general contractors increasingly require the same from subcontractors on larger jobs. If you are a contractor in the Farmington Valley who wants to do school, municipal or DOT work, a bond line is part of the cost of entry. Set it up before the first bid, not the week of.

Businesses that handle other people’s money or property

Fidelity and business service bonds protect your clients against dishonest acts by your employees. Cleaning services, home health agencies, property managers and companies with staff inside client premises are often required to carry one to win contracts. They are inexpensive and easy to issue.

Executors, guardians and conservators

Connecticut probate courts frequently require a bond from the person administering an estate or acting for someone who cannot act for themselves. These are court bonds, and the court sets the amount.

What a surety bond costs

The premium is a percentage of the bond amount, not the whole thing. For a license or permit bond with reasonable credit, one to three percent a year is typical, so a $10,000 bond might cost $100 to $300. Contract bonds are rated on the contractor’s financial strength and experience, and rates vary more. Court and fidelity bonds are usually modest.

Because bonds are underwritten on credit and character, two contractors buying the identical bond can pay different rates. Good books, a clean history and a complete application make a real difference.

How to get one quickly

For a license, permit or fidelity bond, we need the bond form or the requirement letter from the agency, the amount, and basic business information. Many are issued the same or next business day.

For contract bonds, the first time takes longer. The surety will want business financial statements, often personal financials from the owners, a list of completed projects, and the bid or contract documents. Once a bond line is established, bid bonds can be issued in a day. That is why it pays to have the relationship in place before the first public bid.

Bond or insurance? Usually both.

The permit office wants a bond. The general contractor wants a certificate of insurance. Those are different documents backing different obligations, and most contractors in Connecticut need both. We handle them together so the bond, the general liability policy and the workers’ comp all live in one place and the certificates come from one phone number.

If someone has told you that you need a bond and you are not sure which kind, call (860) 672-1733 or send us the requirement. We will tell you what it is, what it costs and how fast we can issue it. More on our surety bond services and contractor insurance.