Arizona Contractor License Bonds
What Is the Purpose of an Arizona Contractor License Bond?
Contractors in the State of Arizona are required by the Arizona Registrar of Contractors (AZ ROC) to obtain a surety bond in order to be issued a license. According to Arizona Revised Statutes Title 32, Chapter 10, the contractor’s bond type and necessary bond limit will depend on the scope and nature of the construction work conducted. Arizona Contractor License Bonds act as fiscal guarantees for the benefit of the AZ ROC or the general public if the contractor is found to be at fault for incomplete or improper work, non-payment of mandatory fees or other obligations, and/or a breach of contract.
Who Needs a Contractor License Bond?
Arizona contractors must be properly licensed with the Arizona Registrar of Contractors as well as bonded through an Arizona licensed surety company in order to qualify for construction projects. The classification of the license and bond type will depend on the type of work performed by the contractor such as commercial or residential construction.
As specified in Arizona Revised Statutes Chapter 10, Article 2 & 3, the contractor must file the bond that accompanies their license classification in order to activate such license with the AZ ROC. This applies to each individual license number. If a contractor has a different license number for a different classification of work, then an additional bond must be purchased. For contractors across multiple trades, multiple bonds must be filed with the AZ ROC.
Refer to the chart below for details pertaining to the different AZ ROC’s license classifications, the associated construction category that can be done under specific licenses, and the required license bond for each classification.
| License | Field(s) of Construction Work Performed (code and category) | Bond |
|---|---|---|
| Commercial General Contracting (and General Engineering Contractors) | A- General engineering, A-4 Drilling, A-5 Excavating, grading and oil surfacing, A-7 Piers and foundations, A-9 Swimming pools, A-11 Steel and aluminum erection, A-12 Sewers, drains and pipe laying, A-14 Asphalt paving, A-15 Seal coating, A-16 Waterworks, A-17 Electrical and transmission lines, A-19 Swimming pools and solar, B-1 General commercial contractor, B-2 General small commercial contractor | Commercial General Contractor License Bond |
| Residential General Contracting | B- General residential contractor, B-3 General remodeling and repair contractor, B-4 General residential engineering contractor, B-5 General swimming pool contractor, B-6 General swimming pool contractor including solar, B-10 Pre-manufactured spas and hot tubs | Residential General Contractor License Bond |
| Specialty Commercial Contracting | C-1 Acoustical systems, C-3 Awnings, canopies, carports and patio covers, C-4 Boilets, steamfitting and process piping, C-6 Swimming pool service and repaid, C-7 Carpentry, C-8 Floor covering, C-9 Concrete, C-10 Drywall, C-11 Electrical, C-12 Elevators, C-14 Fencing, C-15 Blasting, C-16 Fire protection systems, C-21 Hardscaping and irrigation systems, C-24 Ornamental metals, C-27 Lightweight partitions, C-31 Masonry, C-34 Painting and wall covering, C-36 Plastering, C-37 Plumbing, C-38 Signs, C-39 Air conditioning and refrigeration, C-40 Insulation, C-41 Septic tanks and systems, C-42 Roofing, C-45 Sheet metal, C-48 Ceramic, plastic and metal time, C-49 Refrigeration, C-53 Water well drilling, C-54 Water conditioning equipment, C-56 Welding, C-57 Wrecking, C-58 Comfort heating, ventilating and evaporative cooling, C-60 Finish carpentry, C-61 Carpentry, remodeling and repairs, C-63 Appliances, C-65 Glazing, C-67 Low voltage communication systems, C-70 Reinforcing bar and wire mesh, C-74 Boilers, steamfitting and process piping including solar, C-77 Plumbing including solar, C-78 Solar plumbing liquid systems only, C-79 Air conditioning and refrigeration including solar | Specialty Commercial Contractor License Bond |
| Specialty Residential Contracting | R-1 Acoustical systems, R-2 Excavating, grading and oil surfacing, R-3 Awnings, canopies, carports and patio covers, R-4 Boilers and solar, R-6 Swimming pool service and repair, R-7 Carpentry, R-8 Floor covering, R-9 Concrete, R-10 Drywall, R-11 Electrical, R-12 Elevators, R-13 Asphalt paving, R-14 Fencing, R-15 Blasting, R-16 Fire protection systems, R-17 Structural steel and aluminum, R-21 Hardscaping and irrigation systems, R-22 House moving, R-24 Ornamental metals, R-31 Masonry, R-34 Painting and wall covering, R-36 Plastering, R-37 Plumbing, R-38 Signs, R-39 Air conditioning and refrigeration, R-40 Insulation, R-41 Septic tanks and systems, R-42 Roofing, R-45 Sheet metal, R-48 Ceramic, plastic and metal tile, R-53 Drilling, R-54 Water conditioning equipment, R-56 Welding, R-57 Wrecking, R-60 Finish carpentry, R-61 Carpentry, remodeling and repairs, R-62 Minor home improvements, R-65 Glazing, R-67 Low voltage communication systems, R-70 Reinforcing bar and wire mesh | Specialty Residential Contractor License Bond |
Dual license codes and categories can be found listed here.
Dual licenses are issued for contractors who engage in both commercial and residential construction work. Contractors looking to offer general commercial and residential construction services will be required to obtain a general dual license and the required General Dual Contractor License Bond. Contractors looking to offer specialty commercial and residential construction services will be required to obtain a specialty dual license and the required Specialty Dual Contractor License Bond.
In addition, residential general contractors and dual-licensed contractors are required to either obtain a secondary surety bond or cash deposit in the amount of $200,000 or pay an assessment to the Residential Contractor’s Recovery Fund to solely be used for damages suffered by claimants pursuant to Arizona Revised Statutes 32-1132.
Handymen performing work under $1,000 per job are not required to be licensed. However, only a licensed contractor can perform permit work. Also, all electrical and appliance installation work must be done by a licensed contractor. There are other exceptions to this bonding requirement including architects, gardeners, and utility workers. Further details on exclusions from the contractor license and bonding requirement can be found in Arizona Revised Statutes 32-1121 and 32-1121; Version 2.
What Is the Residential Contractor’s Recovery Fund?
The Arizona Registrar of Contractors created the Residential Contractor’s Recovery Fund to act as an additional form of financial protection for residential homeowners. As stated in the above section, residential contractors and dual-licensed contractors can choose to either obtain an added surety bond or a cash deposit of $200,000, or they can pay an assessment to the Recovery Fund. According to Arizona Revised Statutes 32-1126, subsection G, this payment shall be no more than $600 and is due initially upon the residential contractor’s license application and continues as a biennial fee elicited from the license renewal.
Cash deposits are required in full, which is the most cash-intensive option to not pay into the recovery fund. The bond replacement price can be as low as $2,000 a year, but will typically be higher. This bond price is not to be confused with the typical contractor license bond which is much less.
The Recovery Fund is only available to claimants who own and occupy the residence or intend to occupy the residence (in certain circumstances, the fund can be used for lessees of the property). Claims are not accepted from suppliers, subcontractors, or workers of the residential contractor.
Eligible claimants may only make a claim against the recovery fund if they have already filed a claim against the contractor’s license bond and have received a final determination in regard to such a claim. Claims cannot be made beyond two years following the commission of a residential construction project from which the original damage complaint was derived. If the claim is accepted by the AZ ROC, the claimant is eligible to receive up to $30,000 from the Recovery Fund. Once a residential contractor has cost the Recovery Fund $200,000 in claims, no further payments from the Recovery Fund will be dispersed for that contractor’s license. The contractor must reimburse the AZ ROC for all claims paid out of the Recovery Fund.
Further information about the Recovery Fund can be found in Arizona Revised Statutes Title 32, Chapter 10, Article 2.1-Residential Contractor’s Recovery Fund.
What Do Surety Underwriters Need to Know?
The risk associated with Contractor License Bonds varies greatly between States but overall is relatively high. Yet in Arizona, underwriters will find that low loss ratios for Contractor License Bonds are some of the least risky.
Each license bond will have a bond limit based on the contractor’s license classification and the estimated scope of the work to be performed. Surety companies typically perform personal credit checks of the contractor as well as requesting their license number(s) for further background information on the applicant's business and reputation. Underwriters can find details concerning pending, resolved, and unresolved complaints listed on every contractor’s license page which can be easily accessed through AZ ROC’s “Check A License” search engine. Complaints only appear on the AZ ROC website for a period of 2 years from the date the case closed. An additional “Most Wanted” list of repeat offenders and unlicensed contractors can also be utilized.
Contractor license applicants go through a multiple-step application process and must also meet specific qualifications in order to be granted a contractor license through the AZ ROC. These qualifications include having a minimum of four years of practical or management trade experience dealing specifically with the type of construction field for which the applicant is seeking a license (at least two years of which must have been within the last ten years), and must show by written examination that they can demonstrate adequate knowledge and understanding of building, safety, and state construction laws pertaining to their strived for license classification. A thorough criminal background check, the payment of various fees, and the obtainment of a surety bond are additional required steps. A contractor license will only be granted by the AZ ROC once these steps and qualifications have been met. This extensive process is implicated by the AZ ROC to ensure that all licensees are reputable and will act responsibly as a licensed Arizona Contractor, which may have led to lower surety losses compared to other jurisdictions.
Contractors are expected to adhere to all AZ ROC rules and regulations pursuant to Arizona Revised Statutes Title 32, Chapter 10. Failure to comply may lead to various penalties such as a hearing held by the AZ ROC to discuss possible action for violations committed, the suspension of the contractor’s license, the permanent revocation of the contractor’s license, a citation, civil penalties and fees, civil action, and/or a possible bond claim.
If a claim on a Contractor License Bond is pursued, it is required to go through a complaint and investigation process under the authority of the AZ ROC. In the event that the complaint is found to be justified, mediation between the claimant and contractor will be set up. However, if both parties cannot come to an agreement then the claimant’s case will be referred to the AZ ROC’s legal department where further action will be taken. The surety carrier will only receive a claim payout notification if a judgment by the AZ ROC’s Administrative Law Judge or an Arizona state court is found to be in favor of the claimant.
Ultimately, the AZ ROC provides an advantageous claim process for surety companies undertaking Contractor License Bonds as a business line.
What Do Surety Claims Handlers Need to Know?
Claims can result from a variety of violations such as incomplete work, negligent work, damaged property, the non-payment of mandatory fees to the State, failure to pay other obligations, or committing a breach of contract. Arizona Revised Statutes 32-1154 list all of the prohibited acts that can lead to a claim against a contractor as well as certain timelines in which action can be taken by the AZ ROC or the damaged party. No claim can be filed on the bond after the expiration of two years following the commission of a construction job, the delivery of goods, or the rendering of services on which the complaint is based.
As stated in the above section for underwriters, complaints that cannot be resolved between the contractor and claimant will be referred to the AZ ROC’s legal department. Once reviewed (usually within 3 weeks of receiving a referral), the AZ ROC will issue a formal citation to the contractor with an opportunity to respond to the charges; the contractor has 10 days to file a written response (failure to do so will result in further disciplinary action against the contractor’s license). Upon the AZ ROCs request, the Office of Administrative Hearings will then send a 30-day notice for a scheduled hearing that must be attended by all parties involved. After the hearing has commenced, the Administrative Law Judge has 20 days to send the AZ ROC a recommended decision. The AZ ROC then has 30 days to issue a final order accepting, modifying, or rejecting the judge’s decision. This decision can result in a claim on the contractor’s bond.
In addition, the AZ ROC allows claimants to take further civil action against the contractor. If this action is validated by a state court, the bond can also be used to cover financial damages as well as a reasonable attorney’s fee fixed by the court.
The AZ ROC or state court should give a clear timeline for the bond handling and claim payout deadline, but if they do not, Suretypedia recommends surety carriers to default to their company’s claim handling and payout timeline standards.
If payment is made from a Contractor License Bond, the contractor’s license is automatically suspended and does not qualify for reactivation until the full bond amount is replaced.
Are There Any Alternatives to the Contractor License Bonds?
Yes, the AZ ROC will accept alternatives such as a cash deposit or certificate of deposit. The alternative must be through an Arizona-operated bank and will be deposited by the State Treasurer into the contractors’ cash bond fund. If there are no outstanding claims against the contractor, they may withdraw their alternative deposit two years after the termination of the license with which the deposit was used for.
Certificates of the deposit will come with fees from banks and either method will tie up cash for not only the licensing period, but those two years afterward making it a less desirable option when compared to surety bond premiums.
How Much Do Contractor License Bonds Cost?
In Arizona, the cost of Contractor License Bonds ranges from 1 to 10% of the bond limit. It is an industry standard to base rates on personal credit and experience in the field of the bond applicant.
Contractor license bond limits are based upon the contractor’s license classification and the estimated gross volume of work being conducted within the State of Arizona. Refer to the chart below for details pertaining to license classifications, the gross volume of work, and the accompanying required bond limits.
| License Type (CL Bond Type) | Estimated Gross Volume of Work (Per License) | Bond Limit |
|---|---|---|
| Commercial General Contractors (Commercial General CL Bond) | $150,000 or less | $5,000 |
| Commercial General Contractors (Commercial General CL Bond) | Over $150,000 but not more than $500,000 | $15,000 |
| Commercial General Contractors (Commercial General CL Bond) | Over $500,000 but not more than 1 million | $25,000 |
| Commercial General Contractors (Commercial General CL Bond) | Over 1 million but not more than 5 million | $50,000 |
| Commercial General Contractors (Commercial General CL Bond) | Over 5 million but not more than 10 million | $75,000 |
| Commercial General Contractors (Commercial General CL Bond) | Over 10 million | $100,000 |
| Residential General Contractors (Residential General CL Bond) | Less than $750,00 | $9,000 |
| Residential General Contractors (Residential General CL Bond) | $750,000 or more | $15,000 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | $150,000 or less | $2,500 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | Over $150,000 but not more than $500,000 | $7,000 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | Over $500,000 but not more than 1 million | $17,500 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | Over 1 million but not more than 5 million | $25,000 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | Over 5 million but not more than 10 million | $37,500 |
| Commercial Specialty Contractors (Commercial Specialty CL Bond) | Over 10 million | $50,000 |
| Residential Specialty Contractors (Residential Specialty CL Bond) | Less than $375,000 | $4,250 |
| Residential Specialty Contractors (Residential Specialty CL Bond) | $375,000 or more | $7,500 |
Dual licensed contractors will need to obtain a single dual license surety bond. Dual license bond amounts are calculated by combining the amount required for either general commercial and residential work or specialty commercial and residential work.
How Are Contractor License Bonds Filed in Arizona?
Contractors can either file the original bond form in person or by mail to the Arizona Registrar of Contractors in order to complete their initial or biennial renewal contractor license application.
Per the AZ ROC’s bond execution instructions, the bond form must contain exactly the same company or business name and contractor name that appears on the license application, the license classification, the associated field code and category, and original signatures by the surety carrier’s attorney-in-fact and the bond’s principal (contractor). Reproduced signatures are not accepted.
Contractor license application forms can be found on the AZ ROC’s “Licensing Forms” page and additional requirement details can be found on the “Applying for a License?” page.
For filing in person, all documentation must be submitted to the following location:
Arizona Registrar of Contractors
1700 W. Washington St. Ste. 105
Phoenix, AZ 85007-2812
For filing by mail, all documentation must be sent to the following address:
Arizona Registrar of Contractors
P.O. Box 6748
Phoenix, AZ 85005-6748
Can Arizona Contractor License Bonds Be Cancelled?
Yes, Contractor License Bonds can be cancelled by the surety carrier with a written notice to the Arizona Registrar of Contractors. Each license bond has a 30-day cancellation provision, meaning the bond will remain active for 30 days after the cancellation notice is filed with the AZ ROC.
Are Contractor License Bonds Renewable in Arizona?
Yes, Arizona Contractor License Bonds are continuous until cancelled and will need to be renewed upon the bond term’s expiration date. In keeping with AZ ROC regulations, the surety bond is required to remain active for as long as the contractor wishes to preserve their license status.
Contractor licenses must be renewed biennially, meaning the license will need to be renewed every other year. Due to this, common bond terms range from one to three years.
Do Licensed Contractors Need Any Other Bonds?
Contractors might be required to acquire additional surety bonds based upon the construction projects they are carrying out. Supplemental bonds may include the Arizona Taxpayer Bond.