Surety bonds play a huge role in North Carolina’s construction industry, yet they can be confusing for both contractors and their lawyers. Although the federal Miller Act requires the use of contract (or construction) bonds on all public projects that exceed $100,000, the North Carolina Licensing Board for General Contractors (LGBC) requires contractors to secure a general contractor’s license before submitting a bid if they will be working on a project totaling $30,000 or more.
According to section .0200 of the North Carolina LGBC Rules and Regulations, contractors looking to be licensed in the state “shall maintain the bond in the amount of three hundred fifty thousand dollars ($350,000.00) for a limited license, one million dollars ($1,000,000.00) for an intermediate license, and two million dollars ($2,000,000.00) for an unlimited license.”
If a contractor fails to meet the stipulations outlined in the bond’s language, harmed parties can make a claim on the bond in order to gain financial compensation. If the contractor cannot do so, the surety will be responsible for remedying the situation for an amount not to exceed the bond’s penal sum. Because they could potentially be held accountable for a contractor’s mistakes, surety bond companies conduct thorough financial reviews and credit checks of all applicants before issuing a bond.
Contractors should be aware that if a claim is made on their bond, they typically have to go through the bonding process again so that they can reinstate their licenses to operate legally within in the state. Finding a surety provider to issue a new bond after having a claim on a previous one can be difficult and expensive, and thus contractors are encouraged to complete all work reliably and according to contract. Failing to secure and maintain necessary bonds can result in heavy fines and other legal repercussions, including license revocation.
Certain changes have been made to the federal Miller Act for construction projects commissioned by the Department of Defense. The Defense Federal Acquisition Regulations System 48 CFR Parts 228.102–1 was amended to increase the necessary surety bond threshold from $100,000 to $150,000. The increase is in accordance to a federal regulation mandating that certain adjustments be made every five years due to inflation, and it will affect both performance and payment bonds.
According to the Winter 2011 edition of the North Carolina LBGC bulletin, no other new legal changes involving surety bonds will affect the state’s construction industry within the next couple of months.
This has been an guest post by SuretyBonds.com as a part of their Surety Bond Education Program. SuretyBonds.com offers over 25,000 bond types to professionals across the nation. The agency has a special interest in helping contractors and their lawyers understand the legal aspect behind the surety bond process.