Michigan Construction Bonds

Michigan Construction Bonds

Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.

What Are Michigan Construction Bonds?

Michigan construction bonds are surety bonds that help ensure that contractors working in Maryland do so lawfully and ethically. The intent is to protect the state, project owners, and the public against the financial harm that can result from regulatory and contractual violations. When losses occur, the injured party can be compensated for monetary damages.

What Michigan Construction Bonds May Be Needed?

Some commonly required construction bonds in Michigan are:

Construction bonds may be required by state and/or local contractor licensing bodies. They also may be required by public or private project owners, particularly for larger projects.

Other Michigan construction bonds that project owners may require include:

  • Contractor license bonds
  • Maintenance bonds
  • Subdivision improvement bonds
  • Solar decommissioning bonds
  • Right of Way bonds

How Do Michigan Construction Bonds Work?

There are three parties to every Michigan construction bond: the obligee, the principal, and the surety.

  • The party requiring the bond is the “obligee,”
  • The contractor purchasing the bond is the “principal,” and 
  • The party guaranteeing the payment of claims is the “surety.”

The principal is legally obligated to pay valid claims. But in practice, the surety honors its guarantee by paying a claimant directly as an extension of credit to the principal. If the principal does not repay the resulting debt, the surety can take legal action to recover the funds.

How Much Do They Cost?

The annual premium cost for a construction bond is only a small percentage of the required bond amount. That percentage is the premium rate, which is assigned by the surety on a case-by-case basis through underwriting. 

The main underwriting concern is the risk of the surety not being repaid for the credit extended to the principal in paying claims on the principal’s behalf. A principal with a high personal credit score is considered to be a low risk to the surety, which means the premium rate will be low. A less creditworthy principal presents greater risk, which calls for a higher premium rate.

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.

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