What is a Michigan Contractor License Bond?
In many states, licensed contractors working in the construction industry are required to comply with specific regulations in order to operate their businesses legally. One of the mandates that commonly comes with being a licensed contractor is posting a surety bond. In Michigan, some construction contractors must obtain a Michigan contractor license bond as part of the licensing process.
A Michigan contractor license bond is designed to protect the jurisdiction in which the contractor works, as well as the customers or vendors the contractor engages with in the course of doing business. If work on a construction project is not performed well or is left incomplete, a claim against the Michigan contractor license bond may be made.
Who Needs a Michigan Contractor License Bond?
Unlike other states that require all licensed contractors to secure a surety bond, Michigan contractor license bonds are only necessary on a local level. Currently, the city of St. Clair Shores and Oakland County in Michigan are the only two local jurisdictions requiring a Michigan contractor license bond as part of the contractor licensing process. Any individual who performs work that falls under the category of contractor in these two locations must obtain a bond in order to remain compliant with the law.
Michigan Contractor License Bond Obligee Details
As with any surety bond, a Michigan contractor license bond is an agreement between three distinct parties. The contractor required to secure the bond is known as the principal, and the bond is purchased from a surety company. The third party, the obligee, is the local licensing authority mandating a contractor license bond be put in place.
The obligee of a Michigan contractor license bond varies depending on the city or county in which the contractor plans to work. For instance, the St. Clair Shores's Building Department under the Community Development and Inspections Department is the obligee of Michigan contractor license bonds in the jurisdiction.
How Much Does a Michigan Contractor License Bond Cost?
The cost of a Michigan contractor license bond varies from contractor to contractor, depending on a few specific factors. The amount of the bond that must be in place for a licensed contractor can be as low as $1,000, but contractors do not pay this full amount. Instead, the surety company providing the bond calculates the price as a percentage of the bond total. For most contractors, this ranges from 1 to 10%.
The surety company reviews a contractor's credit history to evaluate the financial risk of issuing a bond as part of the process. Contractors who have less than ideal credit are likely to pay a higher bond price than those who have strong credit histories.
How do You Get a Michigan Contractor License Bond?
Licensed contractors who need a Michigan contractor license bond may start the process by filling out a short online quote form with the surety company. After providing information about the bond type and amount, and a review of credit, pricing for the bond is provided, and payment can be made. Michigan contractor license bonds may need to be renewed each year or every few years to remain compliant with licensing regulations.