In this article we will review the requirements you need to obtain a contractor’s license in the state of Montana.
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What Contractor Licenses Are Issued in Montana?
The Montana Department of Labor and Industry issues licenses to general contractors and specialty contractors working in Montana’s construction industry. (The exception is water well contractors, who are licensed by the Montana Board of Water Well Contractors.)
General contractors are licensed as either construction contractors or independent contractors (contractors who have no employees). If you do both general or independent contracting and specialty contracting (such as plumbing or electricity), you will need both a general or independent contractor license and a specialty contractor license.
Additionally, some cities, most notably the City of Missoula, require local licensing of contractors working within their jurisdiction.
What Are the Steps in the Licensing Process?
In Montana, the same form is used to register your business with the state and to apply for a contractor license. However, independent contractors who are not required to provide workers’ compensation coverage will have to file an additional form to certify their exemption and complete their state registration.
Applicants for a construction contractor or independent contractor license do not have to take an exam, but there are examination requirements for some specialty contractors, including electricians and plumbers.
Some license applicants will need to purchase a contractor license surety bond. At the state level, there is a bonding requirement for water well contractors, and some local licensing authorities require certain contractors to purchase a contractor license bond. For example, the City of Missoula requires a contractor license bond from sidewalk, curb, and paving contractors, excavation contractors, and those applying for licensure as a gas fitter.
Why is a Contractor License Bond Required?
When a contractor license bond is required, it’s for the purposes of:
- Ensuring the contractor’s compliance with applicable laws, regulations, building codes, etc., and
- Providing financial protection for the government entity requiring the bond (the bond’s “obligee”) and for the contractor’s clients.
If the contractor (the bond’s “principal”) violates the terms of the surety bond agreement in a way that causes financial harm to the obligee or a client, the injured party can file a claim against the bond and be compensated for the loss, up to the full required amount of the bond. The surety bond agreement is a legally binding contract that obligates the principal to pay all valid claims.
How Are Contractor License Bond Claims Paid?
There is a third party to every surety bond agreement—the “surety,” which is the company providing the bond and guaranteeing the principal’s payment of claims. As the bond’s guarantor, the surety typically extends credit to the principal by paying a valid claim initially, on the principal’s behalf. The principal’s legal obligation to pay claims then becomes a legal obligation to reimburse the surety. Failing to do so can result in the surety taking legal action against the principal to recover the funds.
How Much Does a Montana Contractor License Bond Cost?
Two factors enter into the calculation of the annual premium for a Montana contractor license bond: the required bond amount established by the obligee and the premium rate the surety assigns to the principal. The premium rate reflects the underwriters’ assessment of the risk the surety takes on in agreeing to extend credit to the principal for the payment of claims.
The best measure of that risk is the principal’s personal credit score. A high credit score indicates a low risk that the principal won’t repay the surety for claims paid on the principal’s behalf. Therefore, the principal’s premium rate will also be low, perhaps as low as 1%. On the other hand, a low credit score is a sign of a higher risk level, so the premium rate could be as high as 3% to 5%.
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