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Of the three categories of contractor licenses in Michigan, two are issued at the state level by the Michigan Department of Licensing and Regulatory Affair. These are the Michigan Residential Builder’s License and the Michigan Maintenance and Alteration Contractor licenses. Neither of these require a Michigan contractor license bond.
The third type of contractor license in Michigan is the Commercial Builders license, which is issued locally in certain municipalities for certain kinds of public works projects. Some of those municipalities require a Michigan contractor license bond from those applying for a Commercial Builders license.
When a Michigan contractor license bond is required, the purpose of that requirement is to guarantee that the commercial builder:
Complies with all local construction ordinances and building codes
Completes public works jobs in accordance with contract terms and provisions
Pays all taxes due to the local taxing authority
The bond also provides a source of funds for compensating those who experience a financial loss due to the commercial builder’s unlawful or unethical actions in executing a project.
Who Needs Them?
Contractors doing commercial work in municipalities requiring a commercial builder’s license need to check with the local licensing authority to see whether a Michigan contractor license bond is also required.
How Do They Work?
There are three parties to the surety bond agreement for a Michigan contractor license bond:
The local authority requiring the bond is the “obligee”
The commercial builder required to obtain the bond is the “principal”
The bonding company underwriting and issuing the bond is the “surety.”
If the principal violates the terms of the surety bond agreement, the obligee or other injured party can seek compensation for any resulting financial loss by filing a claim against the Michigan contractor license bond. Although the legal obligation for paying claims belongs solely to the principal, the surety will often pay them on behalf of the principal, who must then repay that debt to the surety.
What Do They Cost?
The components of the premium cost calculation include:
The required bond amount (the bond’s penal sum), which is established by the obligee
The premium rate, which is determined by the surety
Understandably, the surety’s main concern is the risk inherent in extending credit to the principal. The higher the principal’s credit score and the greater his financial strength, the less credit risk there is, and the lower the premium rate will be.
With very good credit, the principal will likely qualify for the standard market premium rate, which is between one and three percent. If the surety has reason to be concerned about the likelihood of claims, the premium rate will be significantly higher.
Get Bonded Today
Request a convenient online quote today, or call to speak with one of our experienced professionals about the Michigan contractor license bond you need.