Do I Need a Surety Bond in Michigan? A Contractor's Guide

Do you need a surety bond in Michigan? For a residential builder license, the answer is no — and that surprises contractors who moved here from a state that requires one. But that is only the licensing question. The moment you bid public work over $50,000 or pull a permit to open a city street, a bond becomes mandatory. Here is where Michigan actually requires bonds, what they cost, and the one thing about them that catches contractors off guard at the worst possible moment.

Michigan does not bond your builder license

Article 24 of Michigan's Occupational Code (MCL 339.2401–339.2412) governs residential builder and maintenance & alteration contractor licensing. The entire article contains no reference to a bond, a surety, or proof of insurance. Neither does LARA's license application form. What Michigan does require:

• 60 hours of prelicensure education from a LARA-approved provider, with minimum hours in business management and estimating, design and building science, contracts and risk management, marketing and sales, project management, the Michigan Residential Code, and MIOSHA construction safety standards.
• A passing exam score. Administered by PSI under contract with LARA — a business and law section plus a trade practice section.
• A $195 application fee for an individual residential builder or M&A contractor license. Renewal is $150; the license runs three years.
• A physical Michigan business address. Not a P.O. box, and a branch office license is required for each additional Michigan location.
• A qualifying officer if you license a corporation, LLC or partnership — someone who passes the exam and also holds an individual license.

This makes Michigan meaningfully different from California, Nevada, Arizona and Florida, all of which require a contractor license bond. It also means Michigan homeowners have no state bond or state fund to claim against — the Homeowner Construction Lien Recovery Fund was repealed in 2010. That absence is precisely why private owners and general contractors write bonding into their contracts.

Public work: the $50,000 threshold

Michigan's version of the federal Miller Act is 1963 PA 213, MCL 129.201 et seq. Its rule is short and has not changed since 1982:

Before any contract exceeding $50,000 for the construction, alteration or repair of a public building, public work or improvement is awarded, the contractor must furnish — at their own cost — both a performance bond and a payment bond.

"Governmental unit" here is broad: the state, any county, city, village, township, school district, public educational institution, other political subdivision, public authority or public agency.

• The performance bond is fixed by the governmental unit at not less than 25 percent of the contract amount, and exists "solely for the protection of the governmental unit awarding the contract" (MCL 129.202).
• The payment bond carries the same 25 percent floor and exists "solely for the protection of claimants... supplying labor or materials" (MCL 129.203).
• Do not read 25 percent as the norm. It is a statutory minimum. The governmental unit sets the actual figure, and in practice Michigan public owners almost always require 100 percent of the contract price on both bonds. Bid accordingly.
• The surety must be authorized to do business in Michigan (MCL 129.204).
• Nobody can steer you. MCL 129.201 prohibits the invitation for bids — or anyone acting for the governmental unit — from requiring that your bonds come from a particular bank, surety company, agent, broker or locality. You choose your own agent.

One thing the statute does not do is require a bid bond. Bid security on Michigan public projects comes from the solicitation documents and agency policy, not from MCL 129.201.

Payment bond claim deadlines worth knowing

If you supply labor or material and are not paid, MCL 129.207 sets the clock. A claimant unpaid 90 days after last furnishing may sue on the bond. A claimant without a direct contract with the principal contractor must serve written notice on that contractor within 30 days after first furnishing, and give written notice to both the contractor and the governmental unit within 90 days after last furnishing. Notices must go by certified mail. Missing those dates forfeits the claim.

City and township permit bonds — the ones that catch people

Michigan pushes contractor bonding down to the local level, and requirements vary town by town. Three verified examples:

• Detroit. All contractors working in the public right of way must be bonded with a $2,500 surety bond with the City of Detroit, completed before any work is done in the right of way — including street work and driveway curb cuts.
• Grand Rapids. A Sidewalk Builder's License requires a current $10,000 surety bond, a certificate of liability insurance naming the City as additional insured, a $100 license fee, three references from past concrete work, and a passed written exam.
• New Buffalo. Street openings and excavations require cash or a performance bond in the penal sum of not less than $5,000, plus public liability and property damage limits of not less than $1,000,000 each.
• MDOT right-of-way permits require a permit performance bond and proof of insurance, filed electronically by your surety or insurance agent. MDOT sets the amount per permit rather than publishing a general schedule.

The practical takeaway: before you pull a permit in a Michigan municipality you have not worked in before, call and ask what bond they require. Assume $2,500 to $10,000 and confirm.

Other Michigan businesses that need a bond

• Motor vehicle dealer — $25,000. Required by MCL 257.248(2) for new, used and broker licenses; indemnifies purchasers, sellers and lessees against fraud or misrepresentation, and the state against sales and use tax deficiency.
• Notary public — $10,000. MCL 55.273(2), filed with the county clerk with a $10 filing fee. Michigan-licensed attorneys are exempt.
• Collection agency — $5,000 to $50,000, with the amount set by LARA (MCL 339.907).
• Personnel / employment agency — $10,000. MCL 339.1006(1).
• Mortgage broker or lender — $25,000; mortgage servicer — $125,000. MCL 445.1654(1)(a).
• Freight broker — $75,000. A federal requirement under 49 CFR 387.307 that applies to Michigan-based brokers.
• Liquor licensees must show proof of financial responsibility of not less than $50,000 (MCL 436.1803). A surety bond is one accepted form, though in practice this is almost always satisfied with liquor liability insurance.

One myth worth killing: several national bond-selling websites advertise a "Michigan auto repair facility bond." There is no such requirement. The Motor Vehicle Service and Repair Act (1974 PA 300) requires registration, not a bond — a sliding fee from $100 to $500 based on gross annual revenue.

The five bond types, plainly

• Bid bond. Guarantees that if you win, you will sign the contract and furnish the required performance and payment bonds. If you walk, it covers the owner's cost of rebidding or the difference to the second-lowest bidder.
• Performance bond. Guarantees the owner that if you default, the surety will complete the work, fund its completion, or pay the owner's resulting damages.
• Payment bond. Guarantees your subcontractors and suppliers get paid for labor and materials furnished to the bonded job.
• License or permit bond. Required by a statute or ordinance as a condition of holding a license or pulling a permit — the Detroit and Grand Rapids examples above.
• Maintenance or warranty bond. Guarantees that workmanship and material defects found in the original construction will be repaired during a warranty period, typically one or two years.

A surety bond is not insurance — and this is the part that hurts

This is the single most important thing on this page, and most contractors learn it the expensive way.

Insurance is a two-party contract designed to compensate you after an unexpected loss. A surety bond is a three-party agreement designed to prevent a loss to somebody else:

• The principal — you, the contractor.
• The surety — the bonding company.
• The obligee — the government agency or project owner. The obligee is the beneficiary, not you.

When you get bonded, you sign a General Agreement of Indemnity. That document obligates you — and usually your business partners, and often your spouse — to repay the surety in full for any loss and expense it incurs on your bonds. As the National Association of Surety Bond Producers puts it, if the contractor fails and the surety suffers a loss, the indemnitors are legally bound to pay the surety back.

So: if your general liability policy pays a claim, you owe nothing beyond your deductible. If your surety pays a claim, you owe the surety every dollar of it. Sureties underwrite to a zero-loss expectation. A bond protects the project owner; it does not protect you. It is closer to a line of credit than to a policy — which is exactly why they underwrite it like one.

What bonds cost in Michigan

Michigan does not publish a state bond rate schedule, so treat the following as industry ranges rather than a Michigan rule:

• Contract bonds (performance and payment): generally 0.5 percent to 3 percent of the contract price. Established contractors sit near the bottom; NASBP notes emerging contractors can expect 2 to 3 percent.
• License and permit bonds: roughly 1 to 2.5 percent of the bond amount for strong personal credit, rising to 10 percent or more for weak credit. On a $10,000 Grand Rapids sidewalk bond, that is roughly $100 to $250 a year with good credit.
• Small bonds often hit a carrier minimum premium rather than a percentage — a $2,500 Detroit right-of-way bond typically prices at the minimum.
• Worked example: a $500,000 Michigan public-works contract with 100 percent performance and payment bonds costs an established contractor roughly $5,000 at 1 percent, and an emerging contractor $10,000 to $15,000 at 2 to 3 percent. Build it into the bid.
• The SBA can help newer contractors. Its Surety Bond Guarantee Program backs bid, performance and payment bonds on contracts up to $9 million (non-federal) and $14 million (federal), charging the small business 0.6 percent of the contract price for performance and payment guarantees, and nothing for bid bonds.

How sureties decide — the three C's

Contract surety underwriting looks at what the industry calls the three C's:

• Capital. Your financial strength — working capital, net worth, liquidity, profitability, banking relationship.
• Capacity. Your ability to actually perform this specific job — experience with the type and size of work, personnel, equipment, current backlog.
• Character. Reputation, integrity and track record, including how you have handled disputes.

Expect to produce three years of financial statements, current interim financials, a work-in-progress report, personal financial statements from every indemnitor, bank loan agreements, resumes of key staff, evidence of insurance and a copy of the contract. Contractors who get bonded quickly are the ones whose books were already in order — CPA-reviewed statements and a clean WIP schedule do more for your bonding capacity than anything else.

Worth noting: financial condition already matters at the licensing stage in Michigan, since LARA can deny a residential builder license for financial instability (MCL 339.2404c).

The bottom line

Michigan is a light-touch state on contractor bonding at the license level and a normal one everywhere else. If you only build residential work for private homeowners, you may never need a bond. The day you bid a school district project, open a city street, or take on a general contractor who requires subcontractor bonds, you need a bonding relationship already in place — and establishing one takes weeks, not days. Contractors lose bids because they started the bonding conversation after the bid date.

J. Jacobs & Associates has represented Michigan contractors since 1981, and we place both bonds and the coverage that sits alongside them. If you have a project coming up, let us get your surety bond capacity established before you need it, and review your contractor insurance at the same time. Request a free quote or call (248) 693-6455. For the coverage side of the picture, see what a Michigan contractor legally needs to carry.

Frequently Asked Questions

Does Michigan require a surety bond for a contractor license?

No. Michigan's Occupational Code Article 24, which governs residential builder and maintenance & alteration contractor licenses, contains no bond or surety requirement. LARA requires 60 hours of prelicensure education, a passing exam, a $195 application fee and a physical Michigan business address. This differs from states such as California, Nevada, Arizona and Florida, which do require a license bond.

When are performance and payment bonds required in Michigan?

On public construction contracts exceeding $50,000. MCL 129.201 requires the contractor to furnish both a performance bond and a payment bond before award, on any contract for the construction, alteration or repair of a public building, work or improvement for the state, a county, city, village, township, school district, public educational institution or other public agency.

How much does a surety bond cost in Michigan?

Contract performance and payment bonds generally run 0.5 to 3 percent of the contract price, with emerging contractors typically paying 2 to 3 percent. Small license and permit bonds run roughly 1 to 2.5 percent of the bond amount for contractors with strong credit — about $100 to $250 a year on a $10,000 bond — and considerably more with weak credit. Michigan does not publish an official rate schedule.

Is a surety bond the same as insurance?

No. Insurance is a two-party contract that compensates you for a loss. A surety bond is a three-party agreement — principal, surety and obligee — that protects the project owner, not you. You sign a General Agreement of Indemnity obligating you and your co-indemnitors to repay the surety in full for any loss it pays on your behalf. Sureties underwrite to a zero-loss expectation.

Do Michigan cities require contractor bonds?

Many do, for permit and right-of-way work. Detroit requires a $2,500 surety bond before any work in the public right of way. Grand Rapids requires a $10,000 surety bond for a Sidewalk Builder's License. New Buffalo requires at least a $5,000 bond for street openings and excavations. Amounts and rules vary by municipality — confirm with each city before pulling a permit.

Does a Michigan auto repair shop need a surety bond?

No. The Motor Vehicle Service and Repair Act (1974 PA 300) requires registration, not a bond. Registration fees run on a sliding scale from $100 to $500 based on gross annual revenue. Advertisements for a "Michigan auto repair facility bond" do not reflect any Michigan statute.