Surety Bond Basics for HVAC Contractors

The rules of this agreement are fairly simple: the contractor has to do their work in accordance with applicable rules and regulations and cannot defraud clients.

HVAC contractors know all about the "hot and cold" of the HVAC contracting business. With demand for air conditioning and efficient heating and cooling systems rising, it's a profitable and in-demand profession.  But you're also in a position of great responsibility, with access to people's homes and workplaces, as well as their comfort and safety, placed in the contractor's hands.

When it comes to heating and ventilation, buildings have complex systems and often strict building codes. State and local governments don't want to see a crisis where seniors are suffering heatstroke in the summers or families are shivering through the winters; they want to make sure these systems are handled well. To make sure work is always done correctly, some  states and municipalities may require contractor license bonds.

A violation of the bond agreement can lead to a claim against the HVAC contractor. HVAC contractors need to understand how surety bond claims work as even one claim can be costly to their business. So let’s delve into it, and help you understand why and how you should always avoid claims.

Some Surety Bond Basics

Many HVAC contractors obtain a surety bond without really understanding what the requirement is about. And who can blame them, with their busy lives and jobs? Still, knowing the implication of surety bonds, and contractor license bonds in particular, is important for running your business smoothly.

As their name suggests, contractor license bonds are license and permit surety bonds, meaning that they're licensing prerequisites for different businesses. Like other license and permit bonds, contractor license bond represent an agreement between three parties:

      The principal (the HVAC contractor)

      The obligee (the state or municipality)

      The surety (a bonding company)

The rules of this agreement are fairly simple: the contractor has to do their work in accordance with applicable rules and regulations and cannot defraud clients. Failure to do so can result in a claim against the contractor license bond. The surety's role in this is backing the agreement, which holds the surety responsible for claims initially. The surety must pay valid claims, but will look to the contractor for reimbursement. The total sum may be anywhere up to the maximum listed on the bond, as well as any legal expenses that were incurred by the surety.

The more informed you are, the better, so here’s where you can learn more about what a surety bond is. Afterwards, you may want to follow this contractor license bond guide to stay up to date on the details of your contractor bond.

Why You Need to Avoid Surety Bond Claims

There are several reasons you want to stay away from claims. Of course, there is the financial aspect: as mentioned, you may be responsible for paying claims and legal fees, because surety bonds require an indemnity agreement between you and the bonding company.

Claims can cost you a lot of money, and an inability to pay them off will not only weigh on you in the form of debt, but will hurt your chances of getting bonded the next time you need one. The alternatives to obtaining a surety bond are usually much costlier. Finally, a claim will also sit unpleasantly on your reputation and could cost you business.

How to Avoid Surety Bond Claims

Now that you're fully aware of the importance of avoiding claims, let’s discuss some of the ways you can minimize your chances of exposing yourself to one.

Get Quality Training. A certain number of hours of HVAC training are usually a licensing prerequisite, but if you feel unprepared with certain parts of the code, invest in some extra training – it can save you a ton of trouble down the road.

Never Stop Learning. It’s not enough to pass your exam, get your license and forget about it. You need to constantly stay on top of all updates in federal and state laws that affect your profession. Ignorance of the law will be no excuse if you are facing a claim.

Always Clarify Details. Whenever you discuss a project with a client, make sure you clear all the details well in advance. You don't want a mismatch in expectations to lead to unnecessary disputes.

Document Every Step. This is useful for both preventing a claim and defending yourself if one arises. The more that you have documented your contact with the customer, the more solid a foundation you'll have when fighting the claim.

Try to Settle. Claims will generally give you a bigger headache than trying to reach a settlement, so opt for the latter if you have the choice.

You're already an expert on keeping things cool, so with these solid foundations, you'll be better prepared to handle situations with your clients that could lead to a claim. What if, despite all your efforts, you find yourself in hot water, facing a claim after all? A good bonding agency will hear your side of the story, and if they feel you're in the right, their team of claims specialists will help you fight the claim.

Lachezar Stamatov has extensive experience blogging about all surety bond-related topics with a focus on small business and the construction industry. He is a frequent contributor for JW Surety Bonds.

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