Bonding in Arkansas

A surety bond is a 3-party promise. The contractor (the principal) pays a surety company for a bond that a customer, subcontractor, or a government entity (the obligee) can draw against if the contractor breaks the rules the bond covers. The surety pays valid claims up to the bond face value. The contractor then owes the surety for what the surety paid out. A bond protects the public. It is not insurance for the contractor. Arkansas uses bonds in three places that contractors commonly confuse. Keep them separate. 1. Arkansas Contractors Licensing Board bond (general contractor). Arkansas requires a commercial contractor license for commercial projects at or above a published threshold and a residential contractor license for residential work. The Arkansas Contractors Licensing Board imposes a license bond on licensees. Verify current bond amounts directly with the Board before applying. Source: Arkansas Contractors Licensing Board (https://aclb.arkansas.gov/). 2. Trade-board licenses (Electrical, Plumbing, HVAC) — no uniform state license bond. The AR Board of Electrical Examiners, the AR Department of Health Plumbing program, and the AR HVAC-R Board do not impose a uniform statewide surety bond on every trade license. Licensees may still need local or project-level bonds. Source: AR DOL (https://labor.arkansas.gov/); AR DOH (https://healthy.arkansas.gov/). 3. Public works payment and performance bonds (Little Miller Act, Ark. Code Ann. 22-9-203). Arkansas's Little Miller Act (Ark. Code Ann. 22-9-203) requires performance and payment bonds on public construction contracts. Published industry summaries indicate the threshold is $20,000 (one of the lowest in the country). Bonds each equal 100 percent of the contract amount. The performance bond runs to the governmental entity; the payment bond protects subcontractors and suppliers. Subcontractors on a bonded public job perfect claims against the payment bond rather than lien public property. Verify the current threshold against the statute before assuming a job is bonded. Premium math. A surety charges an annual premium, typically 1 to 3 percent of the bond face value for a contractor with strong credit and no prior claims. Weaker credit, tax liens, prior surety losses, or a new business can push the rate to 5 to 10 percent or more. Public works payment and performance bonds are priced per job, usually 0.5 to 3 percent of the contract price. Bond, insurance, and workers' compensation are separate requirements. An Arkansas contractor carries license bonds only when the license or contract triggers them, general liability insurance at limits required by the Board or project owner, and workers' compensation under Ark. Code Title 11, Chapter 9 once the business has 3 or more employees.