AZ Contractor License Bonds: Requirements, Costs, and How to Apply

What is an Arizona contractor license bond?

An Arizona contractor license bond is a surety bond that every contractor licensed by the Arizona Registrar of Contractors (ROC) must keep on file under A.R.S. § 32-1152. The bond amount depends on whether the license is residential, commercial or dual, whether it is a general or specialty classification, and the contractor's estimated annual gross volume. Amounts range from $2,500 for a small commercial specialty contractor to $100,000 for a general commercial contractor doing more than $10 million a year. The bond protects homeowners, property owners, suppliers and the Registrar when the contractor fails to meet its obligations. It involves three parties: the contractor (the principal), the surety that issues the bond, and the State of Arizona (the obligee).

Key facts

Who needs an Arizona contractor license bond?

Arizona requires an ROC license for almost all construction work, and every license needs a bond or cash deposit on file before it is issued. Work is exempt only when the whole project, including labor and materials, costs less than $1,000, needs no building permit, isn't part of a larger job, and the worker's ads say "not a licensed contractor." The bond amount is set by the license type and the annual gross volume the contractor expects to do under that license.

Commercial licenses (general: A, B-1, B-2; specialty: C classifications)

Residential licenses (general: B, B-3, B-4, B-5, B-6, B-10; specialty: R classifications)

General engineering (A) licenses use the general commercial amounts. Dual licenses (KA, KB-1, KB-2, CR) need both the residential and the commercial amount, which can be posted as one combined bond. For example, a KB-1 contractor doing $2 million a year in commercial work and more than $750,000 in residential work needs $50,000 + $15,000 = $65,000. The statute sets ranges for each tier, and the Registrar fixes the amounts above; check the ROC bond page before quoting.

What makes the Arizona bond different

Arizona's bond rules differ from most states in a few ways agents and contractors should know before quoting.

• The bond is mandatory. In many states a license bond is one way to show financial responsibility. In Arizona every licensee must post the bond or an equal cash deposit, whatever its financial strength.
• The amount follows annual volume. Contractors declare the gross volume they expect to do under each license. If business grows past the tier on file, the bond should be raised. Increases can be filed at any time, but a lower amount can only be requested at renewal.
• Residential and commercial work are bonded separately. Each bond protects a different group of claimants (see Claims below), so a dual license needs coverage for both.
• Residential licenses also fund the Recovery Fund. Residential and dual licensees pay an assessment into the Residential Contractors' Recovery Fund (currently $370 with a new license and $270 at each renewal), or post an additional $200,000 bond or cash deposit instead. The fund pays eligible homeowners up to $30,000 per residence and $200,000 per license after other remedies, including the license bond, are used.
• The Registrar can require a larger bond. After a hearing, the Registrar can require a bond of up to ten times the normal amount in certain disciplinary cases.
• Out-of-state and new contractors may need a second bond. The Arizona Department of Revenue requires a separate transaction privilege tax (TPT) bond from many newer and out-of-state contractors (see below). It does not replace the ROC license bond.

How does a contractor get licensed in Arizona?

An Arizona contractor gets licensed by forming a business entity, naming a qualifying party who has the required experience and passes the exams, filing a license bond, and applying to the Registrar of Contractors. The ROC reviews the qualifying party, the entity, background checks and the bond before issuing the license.

1. Choose the classification. Decide whether the work is residential, commercial or both (dual), and pick the general or specialty classification that covers it. Estimate the annual gross volume, since it sets the bond amount.
2. Register the business. LLCs and corporations register with the Arizona Corporation Commission, and partnerships with the Arizona Secretary of State. The entity must be in good standing before it applies. Sole proprietors don't need to register.
3. Name a qualifying party (QP). The QP must be regularly employed by the business and meet the experience requirement for the classification. Most general classifications require four years of experience.
4. Pass the exams. The QP must pass the Arizona Statutes and Rules Exam, taken online through GMetrix, and the trade exam for the classification through PSI, each with a score of at least 70%. The Statutes and Rules Exam can't be waived.
5. Complete background checks. The applicant and the QP each submit a background check through AccusourceHR. Checks expire 90 days after completion.
6. File the bond. Submit the license bond (or cash deposit) for the classification and volume tier. Residential and dual applicants also pay the Recovery Fund assessment.
7. Apply to the ROC. Submit the application, fees and supporting documents online through the ROC customer portal, by mail, or in person in Phoenix.
8. Renew every two years. Arizona licenses are issued for two years. The bond and workers' compensation coverage must stay in force for the whole term. Late renewal carries a $50 penalty.

Arizona license fees

Fees cover a two-year license and don't include exam fees.

Residential and dual totals include the Recovery Fund assessment ($370 for a new license and $270 at renewal).

How much does an Arizona contractor license bond cost?

The premium for an Arizona contractor license bond typically ranges from 0.75% to 5% of the bond amount per year, with a minimum premium that often sets the price of smaller bonds. The final rate is based on the owner's credit and experience. Estimated annual premiums for common bond amounts:

Estimates assume a $100 minimum annual premium; minimums vary by surety. Owners with challenged credit (below 600) typically see rates of 5% to 10%. Larger bonds for owners with weaker credit may also require business financials.

Circle Surety can provide instant quotes for these and many other bonds through our online portal.

How to get an Arizona contractor license bond

1. Confirm the amount. Match the bond to the license type (residential, commercial or dual), the classification (general or specialty) and the annual volume tier. Dual licenses need both amounts.
2. Gather the firm details. Use the exact legal name, any DBA, and the address as they appear on the ROC application. A bond in the wrong name will be rejected.
3. Apply online. Fill out the short form below, as the contractor or on your client's behalf. A soft credit check is required to determine the final premium.
4. Pay and receive the bond. The bond is issued on the ROC bond form for the license type. This usually only takes a few minutes after payment is completed. These bonds can often be issued without the need for a signed indemnity agreement.
5. Sign the bond. The contractor signs as principal, and the surety's attorney-in-fact signs for the surety.
6. File with the ROC. Submit the bond with the license application, or with a bond change request if the license is already active. The bond takes effect when the ROC files it, or on a later effective date shown on the bond.

What out-of-state contractors need to know

Contractors based in another state follow the same licensing steps as Arizona firms, with a few added requirements.

• Register with the Corporation Commission. Out-of-state LLCs and corporations must register with the Arizona Corporation Commission and be in good standing before applying to the ROC.
• Trade exam and experience waiver. The Registrar can waive the trade exam when the QP has, within the past five years, been the qualifying party for a business licensed in the same classification in Arizona or a comparable state, in good standing, and earned that license by passing a trade exam. Applicants file the ROC's Application to Waive a Trade Examination.
• NASCLA exam. The ROC accepts the NASCLA Commercial General Building exam in place of the Arizona trade exam for B-1 and B-2 licenses (and the commercial side of KB-1 and KB-2). Contractors who already passed NASCLA don't need to retake it.
• The Statutes and Rules Exam is always required. Every waiver covers the trade exam only. All qualifying parties must pass Arizona's Statutes and Rules Exam.
• TPT license and bond. Contractors pay Arizona transaction privilege tax as prime contractors. Under A.R.S. § 42-5006, a contractor that has done business in Arizona for less than a year, or whose principal place of business is outside Arizona, must post a TPT bond with the Department of Revenue and keep it for at least two years. The amount is $2,000 for most trades, $7,000 for single-family general contractors and utility line work, $17,000 for commercial and industrial building and highway work, and $22,000 for heavy, bridge, tunnel and elevated highway construction.
• The license bond works the same way. An out-of-state firm posts the same ROC license bond as an Arizona firm. It must be written by a surety authorized to do business in Arizona and issued in the exact name on the license, including any DBA.

Public project bonds in Arizona

The license bond doesn't take the place of bonds required on public jobs. Arizona's public construction contracts call for separate bid, performance and payment bonds.

Public bonds must be written by a surety holding an Arizona certificate of authority; individual sureties aren't accepted. A public body can't require bidders to use a specific surety, agent or broker. Check the bid documents for each project.

Circle Surety's contract bond program gives contractors an instant program approval. Bid, performance and payment bonds for individual jobs are then issued under that approval in minutes. Agents can quote the license bond and set up contract bond capacity for the same client at once.

Requirement details

Bond vs. cash deposit

Instead of a surety bond, a contractor can post a cash deposit or a certificate of deposit from a bank operating in Arizona for the full bond amount. The cash stays with the state until two years after the license ends and is released only if no claims are made. A surety bond keeps that money in the business, which is why most contractors choose the bond.

Changing volume tiers

A contractor whose annual volume grows past its current tier should raise the bond to the new amount. Increases can be filed at any time with a rider or a new bond. For example, a general commercial contractor moving from $800,000 to $2 million a year raises its bond from $25,000 to $50,000. If volume drops, the contractor can only lower the bond at renewal for the next period.

Bond form and signatures

The ROC accepts bonds written by a corporate surety authorized to transact surety business in Arizona, on the ROC bond form for the license type. The State of Arizona is the obligee. The bond must show the licensee's exact name, including any DBA, and be signed by the principal and the surety's attorney-in-fact.

Term and renewal

The bond is continuous and has no end date. It stays in force while the premium is paid and the license is active. At each two-year renewal, the contractor confirms that the bond is current and matches the volume tier on file.

Cancellation

The surety can cancel the bond only after giving 30 days' written notice to the contractor and the Registrar. If no replacement bond is on file when the cancellation takes effect, the license is suspended by operation of law. The same applies if a cash deposit is used up by claims and not replenished within 30 days.

Registrar-required increases

After a hearing, the Registrar can require a larger bond for a contractor in certain disciplinary cases, up to ten times the normal amount for the license.

Claims: what the bond covers

• Who can claim on a residential bond: homeowners and others injured by the contractor's work as defined in A.R.S. § 32-1131, anyone who furnished labor, materials or rental equipment directly used on a residential construction contract, and the Registrar
• Who can claim on a commercial bond: owners or lessees of nonresidential property who contracted directly with the contractor and were damaged by work that failed to meet the license law, and the Registrar for amounts owed under the licensing statutes
• How to claim: the claimant files a lawsuit against the contractor and the surety. Claimants who were required to give a preliminary 20-day lien notice must have given it. A surety may also pay valid claims in good faith before a court acts, in the order written claims are received
• Deadline: the lawsuit must be filed within two years of the act, delivery of materials or services it is based on. Fraud claims follow the general fraud deadline
• Limits: the surety's total liability is capped at the bond amount, no matter how many claims are made or how many years the bond runs
• Attorney fees: the court may award reasonable attorney fees against the bond
• Recovery Fund: homeowners whose losses exceed the bond may be able to recover up to $30,000 per residence from the Residential Contractors' Recovery Fund. Commercial claimants, suppliers and subcontractors can't use the fund
• Other bonds: the license bond is separate from any payment, performance, TPT or other bond required by law or by contract
• Your obligation: a bond isn't insurance for the contractor. If the surety pays a claim, the contractor must repay it. Agents should make this clear to clients before issuance

Sources

• A.R.S. § 32-1152 — Contractor license bonds
• Arizona Registrar of Contractors — Bond Information
• Arizona Registrar of Contractors — Applying for a License
• Arizona Registrar of Contractors — License and Renewal Fees
• Arizona Registrar of Contractors — Recovery Fund
• A.R.S. § 32-1132.01 — Recovery Fund limits
• Arizona Department of Revenue — Bond for Contractors
• A.R.S. § 42-5006 — Taxpayer bonds for contractors
• A.R.S. § 34-222 — Performance and payment bonds on public works
• A.R.S. § 41-2573 — Bid security for state contracts
• A.R.S. § 41-2574 — Performance and payment bonds for state contracts
• A.R.S. § 28-6923 — Department construction bids and bonds