Bonding in Pennsylvania

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. Pennsylvania uses bonds differently from many other states. There is no statewide contractor license bond, because Pennsylvania does not run a statewide construction contractor license. Keep these Pennsylvania-specific bond contexts separate. 1. Home Improvement Consumer Protection Act (HICPA): registration, not a bond. Contractors performing $5,000 or more of residential home improvements per year must register with the Pennsylvania Office of Attorney General under HICPA, 73 P.S. §§ 517.1 et seq. HICPA does not require a surety bond as a condition of registration. It requires minimum liability insurance (at least $50,000 per occurrence for personal injury and $50,000 per occurrence for property damage), a registration number displayed on contracts and advertising, and specific contract disclosures. The registration fee is set by the Attorney General. Confirm the current fee on the OAG registration page before filing. 2. Public works payment and performance bonds: 62 Pa.C.S. § 903. The Commonwealth Procurement Code requires bonds on Commonwealth construction contracts. For contracts awarded in excess of $100,000, the contractor must deliver a performance bond in an amount equal to 100% of the contract price and a payment bond in an amount equal to 100% of the contract price before work begins. For contracts between $25,000 and $100,000, the purchasing agency may require contract performance security in an amount up to 50% of the contract price, at the agency's discretion. Payment bonds on public projects protect subcontractors and suppliers, because a mechanic's lien generally cannot attach to Commonwealth property. The Public Works Contractors' Bond Law of 1967 (Act 385 of 1967) imposes parallel requirements on other Pennsylvania public bodies. 3. Local municipal license bonds. Some Pennsylvania municipalities license specific trades locally. Philadelphia runs a master plumber license through the Department of Licenses and Inspections under the Philadelphia Plumbing Code. As of the verification date on this page, the Philadelphia master plumber license conditions issuance on proof of insurance: general liability of $500,000 per occurrence, automobile liability of $300,000, and workers' compensation, and does not list a surety bond as a standing requirement. Pittsburgh and other home-rule municipalities set their own licensing and bonding rules. Always confirm the current municipal requirement against the municipality's license page before you assume a bond is or is not required. 4. Private construction mechanics' lien discharge bonds. Under the Pennsylvania Mechanics' Lien Law of 1963, 49 P.S. §§ 1101 et seq., an owner or contractor can file a bond to discharge or release a claim of lien against a property. This is a project-specific lien tool, 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. Project payment and performance bonds on a public works contract are priced per job, usually 0.5% to 3% of the contract price. Bond, insurance, and workers' compensation are separate requirements. A Pennsylvania trades business typically carries the HICPA-mandated liability insurance (if doing residential home improvement), general liability appropriate to the work, commercial auto, and workers' compensation under the Pennsylvania Workers' Compensation Act. Confirm each requirement against the current statute, code, or municipal rule before you assume you are compliant.