Bonding in Iowa

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. Iowa uses a mix of contractor registration bonds, trade-specific bonds, and public-works bonds. Keep the categories separate. 1. Iowa Contractor Registration and surety bond. Iowa Code Chapter 91C requires most contractors operating in Iowa to register with Iowa Workforce Development (IWD) as a contractor. Out-of-state contractors must also post a surety bond under Iowa Code section 91C.7, currently set at $25,000, running to the state to secure payment of sales tax, withholding, and unemployment contributions owed by the out-of-state contractor. In-state contractors are not required to post the 91C bond but must register. Source: Iowa Workforce Development — Contractor Registration (https://www.iowaworkforcedevelopment.gov/contractor-registration-faq). 2. Trade license bonds. Iowa's Plumbing and Mechanical Systems Board and Electrical Examining Board administer trade licenses under DIAL. Contractor-level licenses (Plumbing Contractor, HVAC Contractor, Class A Electrical Contractor) typically require proof of insurance and may require a surety bond where DIAL rule specifies. Individual journeyperson and master licenses do not themselves require a surety bond. Source: Iowa DIAL Plumbing and Mechanical Systems Licensure (https://dial.iowa.gov/licenses/building/plumbing-mechanical/plumbing-licensure); Iowa DIAL Electrical Licensing (https://dial.iowa.gov/licenses/building/electrical-licensing). 3. Municipal license bonds. Many Iowa cities maintain their own contractor registration and may require a local bond. Amounts and obligees vary. Confirm the local ordinance in each jurisdiction where you pull permits. 4. Public works bonds under Iowa Code Chapter 573 (Labor and Material on Public Improvements — Iowa's Little Miller Act). Iowa Code section 573.2 requires a bond with surety, conditioned for faithful performance of the contract and fulfillment of all requirements of law, on every public improvement contract with a contract price equal to or exceeding $25,000. The bond protects subcontractors and suppliers and runs to the governmental entity. Section 573.5 and related sections govern waiver, claim procedure, and remedies. Subcontractors and suppliers on bonded public jobs pursue claims against the bond rather than filing liens against public property. Source: Iowa Code section 573.2 (https://www.legis.iowa.gov/docs/code/573.2.pdf). 5. Private projects and mechanic's liens. On private Iowa projects, subcontractors and suppliers use the mechanic's-notice and lien procedures in Iowa Code Chapter 572, which center on the Mechanic's Notice and Lien Registry (MNLR) administered by the Secretary of State. This is project-based, not a license bond. 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. Public works performance and payment bonds are priced per job, usually 0.5% to 3% of the contract price depending on contract size, job type, and the contractor's financial statements. Bond, insurance, and workers' compensation are separate requirements. An Iowa trades firm should plan for the 91C contractor registration (and the $25,000 bond if out-of-state), any DIAL trade-contractor bond or insurance requirement, municipal bonds where required, general liability and workers' compensation insurance, and statutory public-works bonds on any qualifying government contract.