Bonding in Maryland

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. Maryland uses bonds in home-improvement, public-works, and nonresident-contractor contexts. Keep these Maryland-specific bond contexts separate. 1. Maryland Home Improvement Commission (MHIC): bond or Guaranty Fund. The Maryland Home Improvement Commission under Md. Code Ann., Bus. Reg. Title 8 requires contractors performing home-improvement work on residential property to participate in the Guaranty Fund (by paying assessments) or post a surety bond as a condition of MHIC licensure. The Guaranty Fund pays consumer claims against licensed contractors up to $30,000 per claim. MHIC licensees must also carry general liability insurance. Source: Maryland Home Improvement Commission (https://labor.maryland.gov/license/mhic/) and Md. Code Ann., Bus. Reg. §8-401 et seq. 2. Master Plumber insurance requirement: insurance, not a surety bond. Master Plumbers must maintain $400,000 in insurance coverage ($300,000 general liability and $100,000 property damage). Maryland does not require a surety bond as a condition of Master Plumber licensure. Source: Maryland State Board of Plumbing License Requirements (https://labor.maryland.gov/license/pl/plreq.shtml). 3. Public works: Maryland Little Miller Act at Md. Code Ann., State Finance and Procurement §17-101 et seq. Maryland's Little Miller Act requires performance and payment bonds on state public-works contracts. Contractors awarded a state construction contract above $100,000 must furnish a performance bond for 100% of the contract price and a payment bond for 50% of the contract price before beginning work. Counties and municipalities typically follow similar requirements. The payment bond protects subcontractors and suppliers, because mechanic's liens generally cannot attach to state property. Source: Maryland State Finance and Procurement Article §17-101 (https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=gsf&section=17-101). 4. Maryland Department of Transportation bonds. Maryland State Highway Administration and Maryland Transportation Authority contracts require bid, performance, and payment bonds under MDOT's standard specifications. Performance bonds are typically 100% of the contract price; payment bonds are 50% of the contract price. Source: Maryland Department of Transportation (https://www.mdot.maryland.gov/). 5. Private construction: Maryland Mechanics' Lien Law at Md. Code Ann., Real Prop. §9-101 et seq. On private Maryland projects, subcontractors and suppliers rely on the mechanic's lien procedures rather than a contractor license bond. An owner may post a bond to discharge a lien under Md. Code Ann., Real Prop. §9-105; this is a project-specific lien tool, not a license bond. Source: Md. Code Ann., Real Property Article §9-101 et seq. (https://mgaleg.maryland.gov/mgawebsite/Laws/StatuteText?article=grp&section=9-101). 6. Workers' compensation self-insurance bond. An employer that self-insures for workers' compensation under Md. Code Ann., Labor and Employment §9-401 files security with the Workers' Compensation Commission, which may include a surety bond. Standard practice is to carry workers' compensation through a licensed carrier. Source: Maryland Workers' Compensation Commission (https://www.wcc.state.md.us/). 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 Maryland 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 Maryland contractor typically carries general-liability insurance appropriate to the trade (plus the statutory $400,000 plumber coverage if a Master Plumber), commercial auto, and workers' compensation under Md. Code Ann., Labor and Employment Title 9. Bonding is a per-project requirement on public work plus a license-level requirement for MHIC. Verify each requirement against the current statute and the contract before you assume you are compliant.