The states of Virginia and Oregon adopted new legislation in 2017 that introduced surety bond requirements for contractors.
In Virginia, the new bond legislation reduced financial burdens on contractors which were otherwise required to demonstrate a certain amount of net worth. In Oregon, a surety bond requirement was introduced for all contractors and subcontractors working on public works projects above $100,000. Read on for an overview of both legislative changes, and what these mean for contractors in these states.
Virginia Class A and B Contractors Can Now Post a Surety Bond
As of July 1, 2017, Class A and B contractors in Virginia have been allowed to obtain a $50,000 contractor license bond, instead of having to satisfy minimum net worth requirement. Previously, Class A contractors were required to maintain a minimum net worth of $45,000, and Class B contractors a net worth of $15,000. Under Senate Bill 1113 contractors in both classes can satisfy the requirement by posting a bond.
The bond is conditioned upon the faithful and honest performance of contractor and their compliance with the bill's provisions. If a contractor violates those provisions and causes any monetary losses, the issue can be brought to court. The bond can provide compensation for any monetary losses that result from such violations, as well as any court costs, and attorney fees assessed against the contractor when they are order to compensate for monetary losses.
If you are new to bonds, you may be wondering what the advantage of obtaining a bond instead of maintaining net worth is. Read on below about the cost of the bond to understand why this option helps contractors.
Oregon Public Works Bond Required for Projects Over $100,000
In Oregon, contractors and subcontractors working on public works projects with a total cost over $100,000 have been required to post a $30,000 surety bond with the Construction Contractors Board as of June 14, 2017. The bond requirement was introduced with Senate Bill 416 earlier this year.
This bond is intended to guarantee that such contractors and subcontractors will pay any outstanding wages to laborers who perform work on their projects. According to the Bill, only one such bond is required for all projects, once the above limit is reached, instead of a separate bond for each.
In addition, the bill also requires contractors to verify that any subcontractor they work with has also filed such a bond, has obtained a waiver of the bond requirement, or is exempt from such a requirement, as specified in the bill.
This bond is conditioned upon the compliance of contractors with the Oregon Revised Statutes (ORS) Chapter 279C, Chapter 360, and the Oregon Administrative Rules (OAR) Chapter 839. A claim can be filed against this bond by the Oregon Bureau of Labor and Industries (BOLI) if a contractor or subcontractor do not pay the required wages to laborers who have performed work on a contract.
Explanation of Bonding Costs
To obtain either of these bonds, contractors do not need to pay the full amount of the bond but only an yearly premium. Premiums on bonds, also called bond rates, are determined by sureties when a contractor applies for their bond.
Sureties typically take into a account a variety of personal financial information about applicants, though personal credit score is the most important factor. Typically, the higher an applicant's credit score - the better their rate.
For this reason, obtaining a surety bond can be a relief to contractors such as those in Virginia because instead of requiring them to maintain a high net worth, contractors can obtain a bond at a much lower cost and still get a license.
Are you a contractor in Oregon or Virginia? What do you think of these new bonding requirements? Leave us a comment below, we'd like to hear from you!