Bonding in South 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 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. South Carolina uses bonds in three places that contractors commonly confuse. Keep them separate. 1. CLB specialty-contractor license bond. Licensed specialty contractors under the SC Contractor's Licensing Board (CLB), including HVAC, plumbing, and electrical, are required to post a $10,000 contractor license bond as part of licensure. The bond runs to the benefit of parties harmed by the contractor's violation of CLB rules. Premium is an annual charge from the surety and is separate from the license fee. Source: SC CLB (https://llr.sc.gov/clb/). 2. CLB financial-responsibility bond as substitute for net worth. The CLB assigns general and mechanical contractors to license groups based on reviewed financial statements. Each group sets the maximum single-project dollar value a licensee may bid. A contractor who does not meet the minimum net worth for a desired group may provide a surety bond in an amount equal to twice the minimum net worth for that group in order to qualify. This bond substitutes for the working-capital or net-worth showing. Source: SC CLB (https://llr.sc.gov/clb/). 3. Public works payment and performance bonds (Little Miller Act, S.C. Code Ann. 11-35-3030). South Carolina's Consolidated Procurement Code requires performance and payment bonds on a public construction contract in excess of $100,000. Each bond must equal 100 percent of the contract amount. The performance bond runs to the governmental entity; the payment bond runs to the benefit of subcontractors and suppliers. Subcontractors on a bonded public job perfect claims against the payment bond rather than lien the public property. Source: S.C. Code Ann. 11-35-3030 (https://www.scstatehouse.gov/code/t11c035.php). Premium math. A surety charges an annual premium, typically 1 to 3 percent 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 percent or more. A $10,000 CLB specialty bond at 2 percent is $200 per year. Public works performance and payment bonds are priced per job, usually 0.5 to 3 percent of the contract price depending on contract size, job type, and the contractor's financial statements. Bond, insurance, and workers' compensation are separate requirements. A South Carolina contractor carries the CLB specialty bond (and any financial-responsibility substitute bond), general liability insurance at any limits the board or project owner requires, and workers' compensation if the business has four or more employees regularly employed under S.C. Code Ann. 42-1-360. Confirm each requirement against the current rule and contract before you assume you are compliant.