If you`re a contractor operating in Tennessee, you`re probably familiar with the state`s licensing requirements. Tennessee law mandates that contractors obtain proper licensure before engaging in any commercial construction or remodeling work. However, in some cases, you may need to provide an additional layer of financial security to land certain jobs. That`s where the Tennessee Contractors License Guaranty Agreement comes into play.
What is a Tennessee Contractors License Guaranty Agreement?
A Contractors License Guaranty Agreement (CLGA) is a document that provides assurance to a client that a contractor can complete a job as specified in the contract. In Tennessee, the CLGA is a requirement for contractors who cannot meet the state`s financial requirements for a standard contractor`s license. The purpose of the CLGA is to provide clients with added security in the event that a contractor is unable to complete a job due to financial difficulties.
How does the CLGA work?
The CLGA is essentially a bond agreement between the contractor, the client, and a surety company. The surety company agrees to pay the client a predetermined amount of money should the contractor default on their contractual obligations. In exchange for this assurance, the contractor pays a fee to the surety company, which is typically a percentage of the bond amount.
Who needs a Tennessee CLGA?
Contractors who cannot qualify for a standard Tennessee contractor`s license may be required to obtain a CLGA to complete certain projects. In Tennessee, the financial requirements for a standard contractor`s license include a net worth of at least $25,000 and a surety bond or letter of credit in the amount of $500,000. If a contractor cannot meet these requirements, they may be able to obtain a CLGA to demonstrate their financial stability to potential clients.
How to obtain a Tennessee CLGA
To obtain a CLGA in Tennessee, a contractor must first contact a surety company licensed to issue these bonds in the state. The surety company will typically require the contractor to complete an application and provide documentation regarding their financial status. Once the surety company approves the application, the contractor will sign an agreement and pay the bond premium. The surety company will then issue a bond to the contractor, which the contractor can provide to clients as proof of financial stability.
Conclusion
If you`re a contractor operating in Tennessee, a Contractors License Guaranty Agreement can provide added assurance to clients that you have the financial stability to complete a job as specified in the contract. While a CLGA may be necessary for some projects, it`s important to remember that it is not a substitute for a standard contractor`s license. If you have questions about whether you need a CLGA or how to obtain one, it`s important to consult with legal and financial professionals to ensure that you remain compliant with Tennessee law.