Michigan Construction Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Michigan construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

What Is a Michigan Construction Bond?

Michigan construction bonds provide protection for construction project owners, both government contracting authorities and private individuals or companies, against financial harm caused by a contractor’s failure to abide by regulatory or contractual requirements. Each of these specialized surety bonds requires the contractor purchasing it to comply with specific legal and contractual obligations and pay any monetary damages resulting from violations.

What Types of Michigan Construction Bonds May Be Needed?

While contractor license bonds are not required at the state level, they may be at the local level, as some Michigan cities and counties do have their own licensing or permitting and bonding rules.

Michigan’s “Little Miller Act” requires performance bonds and payment bonds for state-funded construction projects valued above a certain threshold amount. While private construction projects in Michigan are not subject to the state’s Little Miller Act, private project owners often require performance and payment bonds, particularly for larger projects. Additionally, government project owners require bid bonds when contracts are awarded through competitive bidding. Private project owners may choose to require one as well.

Other construction bonds that may be required by both public and private project owners include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

How Does a Michigan Construction Bond Work?

Every Michigan construction bond is legally binding on three parties, which are referred to as the:

  • Obligee—the government or private project owner requiring the bond
  • Principal—the contractor purchasing the bond
  • Surety—the bond’s guarantor

The legal obligation to pay valid claims against a Michigan construction bond belongs entirely to the principal, but the surety guarantees their payment by setting up a line of credit for the principal when the bond is purchased. If a valid claim is submitted against a construction bond, the surety will pay it on the principal’s behalf by tapping into that line of credit. The principal must then repay the debt to the surety. Failing to do so will most likely result in the surety initiating legal action to recover the funds.

How Much Does It Cost?

The annual premium for a Michigan construction bond is only a small percentage of the required bond amount, that percentage being the premium rate. While the obligee establishes the bond amount, the surety assigns the premium rate on a case-by-case basis. The premium rate reflects an underwriting assessment of the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is measured by the principal’s personal credit score.

A high credit score is taken as evidence that the risk to the surety is low, so the premium rate will be low as well. A low credit score indicates higher risk, which results in a higher premium rate. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Michigan construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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FREE CONSTRUCTION BOND QUOTE

What Is a Michigan Construction Bond?

Michigan construction bonds provide protection for construction project owners, both government contracting authorities and private individuals or companies, against financial harm caused by a contractor’s failure to abide by regulatory or contractual requirements. Each of these specialized surety bonds requires the contractor purchasing it to comply with specific legal and contractual obligations and pay any monetary damages resulting from violations.

 

While contractor license bonds are not required at the state level, they may be at the local level, as some Michigan cities and counties do have their own licensing or permitting and bonding rules.

Michigan’s “Little Miller Act” requires performance bonds and payment bonds for state-funded construction projects valued above a certain threshold amount. While private construction projects in Michigan are not subject to the state’s Little Miller Act, private project owners often require performance and payment bonds, particularly for larger projects. Additionally, government project owners require bid bonds when contracts are awarded through competitive bidding. Private project owners may choose to require one as well.

Other construction bonds that may be required by both public and private project owners include:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

Every Michigan construction bond is legally binding on three parties, which are referred to as the:

  • Obligee—the government or private project owner requiring the bond
  • Principal—the contractor purchasing the bond
  • Surety—the bond’s guarantor

The legal obligation to pay valid claims against a Michigan construction bond belongs entirely to the principal, but the surety guarantees their payment by setting up a line of credit for the principal when the bond is purchased. If a valid claim is submitted against a construction bond, the surety will pay it on the principal’s behalf by tapping into that line of credit. The principal must then repay the debt to the surety. Failing to do so will most likely result in the surety initiating legal action to recover the funds.

The annual premium for a Michigan construction bond is only a small percentage of the required bond amount, that percentage being the premium rate. While the obligee establishes the bond amount, the surety assigns the premium rate on a case-by-case basis. The premium rate reflects an underwriting assessment of the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is measured by the principal’s personal credit score.

A high credit score is taken as evidence that the risk to the surety is low, so the premium rate will be low as well. A low credit score indicates higher risk, which results in a higher premium rate. 

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

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Request a quote online or call today to speak with one of our surety bond experts about obtaining a Michigan construction bond.