Bonding in Michigan

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 agency (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. Michigan is different from bond-heavy states like California or Florida. The Michigan Department of Licensing and Regulatory Affairs (LARA), through the Bureau of Construction Codes (BCC), does not impose a statewide contractor license bond at license issuance for the main trades: residential builder, maintenance and alteration (M&A) contractor, electrical, plumbing, or mechanical. A Michigan tradesperson typically encounters bonds in 2 places. 1. Public works payment and performance bonds (Michigan Little Miller Act). Michigan Public Act 213 of 1963, codified at MCL 129.201 through 129.212, requires a contractor on a state or public agency construction contract to furnish a payment bond and a performance bond before beginning work. The payment bond protects subcontractors and suppliers. The performance bond protects the public owner. The bonds are priced per project by a surety, based on the contract amount and the contractor's credit and experience. An older parallel statute, Public Act 187 of 1905 (MCL 570.101 et seq.), also addresses contractor bonds on public buildings and public works. 2. Local municipal bonds. Some Michigan cities, counties, and townships require their own contractor registration bonds as a condition of operating inside that jurisdiction, separate from the state license. Common examples include excavation, right-of-way, sidewalk, water and sewer tap, and demolition bonds. Amounts and terms are set by local ordinance. Confirm requirements with each municipality before bidding in that jurisdiction. 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 payment and performance bonds on public works are priced per job, usually 0.5% to 3% of the contract price. What bonds do not replace. Bond, insurance, and workers' compensation are separate. A Michigan contractor who employs workers is subject to the Michigan Workers' Disability Compensation Act. General liability insurance is separately required on many public and private contracts. Confirm the exact requirement on each project and with your local municipality before you assume you are compliant. If the current rule in your trade requires a specific bond that is not covered here, treat this page as a starting point and confirm with LARA's Bureau of Construction Codes and the local permitting office for the jurisdiction where the work will be performed.