Bonding in North Carolina

A surety bond is a 3-party promise. The contractor (the principal) pays a surety company for a bond that a customer, subcontractor, or the state (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. North Carolina uses bonds in 3 distinct places, and contractors regularly confuse them. Keep them separate. 1. NCLBGC financial-responsibility surety bond (optional substitute for working capital). The North Carolina Licensing Board for General Contractors does not mandate a surety bond for every license. It requires a financial-responsibility showing that scales to the license classification, and it accepts a qualifying surety bond in lieu of working capital or net worth. The published figures: a Limited license covers projects up to $750,000 and requires $17,000 of current assets over liabilities (or $80,000 net worth) or a $175,000 surety bond. An Intermediate license covers projects up to $1,500,000 and requires $75,000 of working capital or a $500,000 surety bond. An Unlimited license has no project cap and requires $150,000 of working capital or a $1,000,000 surety bond. The surety must be rated by A.M. Best at A- or better, and the contractor and surety must notify the Board within 30 days of cancellation or face license suspension. 2. Trade-board bonds and financial responsibility (electrical, plumbing/heating/fire sprinkler). The trade boards set their own rules separate from NCLBGC. The NC State Board of Examiners of Electrical Contractors (NCBEEC) sets classification tiers and financial-responsibility requirements under its own statute and rules. The NC State Board of Examiners of Plumbing, Heating, and Fire Sprinkler Contractors sets its own classification and financial-responsibility rules. Confirm the current bond or financial-statement requirement for your exact classification against the board's published rules before you assume you are compliant. Board requirements change and vary by license type. 3. Public construction payment and performance bonds (Little Miller Act, N.C.G.S. 44A-26). N.C.G.S. 44A-26 requires a performance bond and a payment bond on a public building or public works contract when the total project exceeds $300,000 (or $500,000 for State departments, State agencies, and the University of North Carolina system). The bonds must each equal 100% of the construction contract amount. They are required from any contractor or construction manager at risk whose contract on the project is more than $50,000. These are project bonds, not license bonds, and are separate from the NCLBGC financial-responsibility showing. 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. A $175,000 NCLBGC-substitute bond at 2% is $3,500 per year. A $500,000 Intermediate-tier bond at 2% is $10,000 per year. Project payment and performance bonds are priced per job, usually 0.5% to 3% of the contract price. Bond, insurance, and workers' compensation are separate requirements. A North Carolina contractor carries the NCLBGC financial-responsibility showing (or substitute bond), general liability insurance at any limits the board or project owner requires, and workers' compensation once the employee-count threshold is met. Confirm each requirement against the current rule before you assume you are compliant.