Michigan Contractor License Bond

In many states, licensed contractors working in the construction industry must comply with specific regulations 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 protects the jurisdiction where 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, then a claim against the Michigan contractor license bond may be made.

As with any surety bond, a Michigan contractor license bond is an agreement between three distinct parties.

The Obligee

The obligee is the local licensing authority mandating a contractor license bond be put in place.

The Principal

The contractor required to secure the bond to license their business is known as the principal.

The Surety

The bond is purchased by the contractor from a surety company, and the surety company pays any claims made on the bond. The contractor must eventually pay back the claims.

The obligee of a Michigan contractor license bond varies depending on the city or county in which the contractor works. 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 this jurisdiction.

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.

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.

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.

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 percent.

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 can still purchase a bond, but they are likely to pay a higher bond price than those who have strong credit histories.

Michigan contractor license bonds may need to be renewed each year or every few years to remain compliant with licensing regulations. Regardless of when your renewal occurs, you should receive a renewal reminder. You should never ignore this reminder because doing so will risk invalidating your bond if it expires.