Bonding in Delaware

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 body (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. Delaware uses bonds in specific out-of-state contractor, public-works, and transportation contexts. Keep these Delaware-specific bond contexts separate. 1. Delaware Business License: generally no surety bond required. The Delaware Business License required under 30 Del. C. Chapter 23 does not require a surety bond as a condition of issuance for most trade and contractor categories. Source: Delaware Division of Revenue (https://revenue.delaware.gov/business-tax/business-license/). 2. Nonresident contractor bond: 30 Del. C. §375. Delaware imposes a 1% gross receipts tax on nonresident contractors. Under 30 Del. C. §375, a nonresident contractor bidding on or performing work in Delaware must either post a surety bond with the Division of Revenue equal to 6% of the contract price or have an equivalent portion of each progress payment withheld as security for the contractor's tax and contribution obligations. Delaware-resident contractors are not subject to this bond requirement. Source: Delaware Division of Revenue Nonresident Contractors (https://revenue.delaware.gov/business-tax/non-resident-contractors/). 3. Public works: 29 Del. C. Chapter 69 (Delaware Public Works Contracts). Delaware's public-works bond statute at 29 Del. C. §6962 requires contractors on state construction contracts to furnish performance and payment bonds, each in an amount equal to 100% of the contract price, before beginning work. The payment bond protects subcontractors and suppliers, who perfect claims under the statutory notice procedures; a mechanic's lien generally cannot attach to public property. Source: 29 Del. C. §6962 (https://delcode.delaware.gov/title29/c069/index.html). 4. Delaware Department of Transportation bonds. DelDOT construction contracts require bid, performance, and payment bonds under DelDOT's Standard Specifications. Performance and payment bonds on DelDOT contracts are typically 100% of the contract price. Source: Delaware Department of Transportation (https://deldot.gov/). 5. Private construction: mechanic's lien at 25 Del. C. Chapter 27. On private Delaware projects, subcontractors and suppliers rely on the mechanic's-lien procedure at 25 Del. C. §2701 et seq. rather than a contractor license bond. An owner may post a bond to discharge a lien; this is a project-specific lien tool, not a license bond. Source: 25 Del. C. Chapter 27 (https://delcode.delaware.gov/title25/c027/index.html). 6. Workers' compensation self-insurance. An employer that elects to self-insure for workers' compensation under 19 Del. C. §2374 must file security with the Delaware Department of Insurance and the Office of Workers' Compensation, which may include a surety bond. Standard practice is to carry workers' compensation through a licensed carrier; self-insurance is reserved for very large employers. Source: Delaware Office of Workers' Compensation (https://labor.delaware.gov/divisions/industrial-affairs/workers-compensation/). Premium math. A surety charges an annual premium, typically 1% to 3% 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% or more. Project performance and payment bonds on Delaware public-works contracts are priced per job, usually 0.5% to 3% of the contract price. Bond, insurance, and workers' compensation are separate requirements. A Delaware contractor typically carries general-liability insurance appropriate to the trade, commercial auto, and workers' compensation under 19 Del. C. Chapter 23. Bonding is a per-project or nonresident-contractor requirement. Verify each requirement against the current statute and the contract before you assume you are compliant.