2.2 Contractor Surety Bonds (NRS 624.270) & Cash Deposit Rules

Statutory Mandate for License Bonds (NRS 624.270)

Before issuing a license, the Board must require the applicant to file a surety bond in a form acceptable to the Board or establish a cash deposit instead (NRS 624.270(1)). Before each renewal, the licensee must show that the bond or deposit is in full force. Failure to file or maintain it is cause to deny, revoke, suspend or refuse to renew a license (NRS 624.270(3)).

The Three-Party Surety Relationship

A license bond is not an insurance policy for the contractor. It involves three parties:

1. The Principal: The licensed contractor, which must comply with NRS and NAC Chapter 624.
2. The Surety: A corporation authorized to transact surety business in Nevada whose long-term debt is rated "A" or better by a nationally recognized rating agency (NRS 624.270(4)).
3. The Obligee: The bond runs in favor of the State of Nevada for the benefit of the persons listed in NRS 624.273.

Unlike an insurer, a surety expects to be repaid. Contractors and often their owners sign a general indemnity agreement, so when the surety pays a valid claim it seeks reimbursement from the contractor.

Bond Amount and Form

• Statutory Range: The bond or deposit must be not less than $1,000 or more than $500,000 (NRS 624.270(4)).
• How the Amount Is Set: The Board fixes it with reference to the contractor's financial and professional responsibility and the magnitude of its operations. The NSCB says the amount depends on the type of license, the monetary limit, financial responsibility, experience and character. The required amount is announced after the license is approved and before it is issued.
• Adjustments: The Board may increase or reduce the bond at renewal or after a hearing when evidence supports it. Increasing the bond is also one of the disciplinary options in NRS 624.300(1)(g).
• Continuous Form: The bond must be continuous. The surety's total aggregate liability for all claims is limited to the face amount, no matter how many years the bond stays in force.
• Relief After 5 Years: After a licensee has contracted in Nevada for at least 5 consecutive years, the Board may relieve it of the bond requirement on supporting evidence, and may later require a new bond (NRS 624.270(5)).
• Wage-Claim Trigger: If the Labor Commissioner reports three substantiated wage claims within 2 years, the Board must require a bond or deposit in an amount it fixes (NRS 624.270(6)).

Exam Note: No statutory table ties each monetary limit to a bond amount. Know the $1,000–$500,000 range and the factors the Board weighs.

Who the License Bond Protects (NRS 624.273)

Each bond or deposit is in favor of the State for the benefit of any person who:

1. Owner: As the owner of the property to be improved, contracted with the contractor and was damaged by the contractor's failure to perform the contract or to remove liens filed against the property;
2. Employee: As an employee of the contractor, performed labor on or about the site of the construction covered by the contract;
3. Supplier: As a supplier or materialman, furnished materials or equipment for the construction covered by the contract; or
4. Injured Person: Was injured by any unlawful act or omission of the contractor in performing a contract.

Claim Rules

• Time Limit: No action may be commenced on the bond or deposit 2 years after the commission of the act on which the action is based (NRS 624.273(2)).
• Surety Notice: When sued on the bond, the surety must notify the Board within 30 days after it is served or the action begins, whichever is first.
• Labor Claims First: An employee's claim for labor is a preferred claim. If the bond cannot pay all labor claims, the money is shared among labor claimants in proportion to their claims. Other claims share equal priority (NRS 624.273(6)–(7)).
• Interpleader: The surety or the Board may interplead all claimants. Notice is published once a week for 2 weeks in the county of the contractor's principal place of business.
• Board Information: On request, the Board tells a protected person whether a bond or deposit is in effect, its amount, and any pending actions.

Cash Deposits in Lieu of a Bond

Instead of buying a surety bond, a contractor may establish a cash deposit with the Board (NRS 624.270(1)(b)):

• Form: The NSCB requires a cashier's check payable to the State Contractors Board for the full bond amount.
• Administrative Fee: A $200 administrative fee applies to cash deposits (NAC 624.130); the NSCB describes it as a biennial fee.
• Retention After the License Ends: A deposit may be withdrawn 2 years after termination of the license, or 2 years after completion of all work the Board authorized after termination, whichever is later, if no claim is outstanding (NRS 624.270(4)).
• Retention After Relief: If the Board relieves a 5-year licensee of the deposit requirement, the deposit may be withdrawn 2 years after relief is granted, if no claim is outstanding (NRS 624.270(5)).
• Rationale: The holding period matches the 2-year limit for bond actions in NRS 624.273.

Bond Cancellation and Suspension (NRS 624.275)

• 60-Day Notice: A surety may cancel a license bond by giving 60 days' notice to the Board and to the contractor by certified mail (NRS 624.275(1)(b)).
• Board Warning: On receiving the notice, the Board immediately tells the contractor, at its latest address of record, that the license will be suspended or revoked unless it furnishes an equivalent bond or cash deposit before the cancellation takes effect.
• Result of Non-Compliance: If the contractor does not comply, the license must be suspended or revoked on the date the bond is cancelled (NRS 624.275(5)(b)).
• Claims Paid: The surety must also promptly notify the Board of claims paid on the bond. The Board then gives the contractor a deadline to restore an equivalent bond or deposit, or the license is suspended or revoked on that date.
• Contracting While Suspended: Work performed while the license is suspended is work without an active license under NRS 624.700.

License Bonds vs. Construction Contract Bonds

Candidates often confuse the license bond with project bonds:

Public Works Bonds (NRS Chapter 339)

Before a public works contract exceeding $100,000 is awarded (highway contracts under NRS Chapter 408 have their own rules), the contractor must furnish (NRS 339.025):

1. A performance bond in an amount fixed by the contracting body, not less than 50% of the contract amount, solely for the protection of the contracting body.
2. A payment bond in an amount fixed by the contracting body, not less than 50% of the contract amount, solely for claimants supplying labor or materials to the contractor or its subcontractors.

A claimant not paid in full 90 days after its last labor or materials may sue on the payment bond. A claimant who dealt only with a subcontractor must give the prime contractor written notice within 30 days after first furnishing and again within 90 days after last furnishing (NRS 339.035). Suit must be filed within 1 year after last furnishing (NRS 339.055). These project bonds are entirely separate from the license bond on file with the NSCB.