What is the difference between being insured and being bonded?

An insurer accepts a risk and expects to pay some claims. A surety guarantees that you will finish the work and expects to pay nothing - if it does pay, it recovers from you, normally under a personal indemnity agreement you signed. That makes a bond a credit decision rather than a policy purchase, which is why it cannot be arranged quickly.

What does a surety look at?

Financial statements, often reviewed or audited rather than internally prepared and usually across several years; working capital, meaning whether you can carry payroll and materials while a public body takes its time paying; a history of completed work of similar size and type; and the owners' personal credit and indemnity.

Is this company bonded?

No. There is no surety line in place, which means public contracts over the $50,000 statutory threshold are not ones we can accept. We publish that rather than let it emerge at award, which is the genuinely damaging version because by then an agency has spent its own time on an evaluation that cannot produce a contract.

What should a contractor without a bond do first?

Insurance, because it is fast and agencies specify limits and endorsements that take days to add. Then vendor registrations, because they are free and several agencies never publish small work at all. Then work below the bonding threshold, which is open today and builds the completed-contract file a surety will later ask to read. Bonding comes last, when there is something to underwrite.

Bonding, Not Licensing, Is What Keeps Small Contractors Out of Public Work

The question most contractors ask first

Small contractors who look at public work almost always start in the same place: what license do I need? It is a reasonable instinct and it is the wrong first question. Licensing is a real gate, but it is not the one that will stop you, and chasing it first means discovering the actual obstacle late — usually about four days before a solicitation closes.

The thing that stops you is a bond.

What the law actually requires

Michigan's public works bond act is blunt. Before the award of any contract over $50,000 for the construction, alteration or repair of a public building, public work or improvement — for the state, a county, a city, a village, a township, a school district, a public educational institution, another political subdivision, a public authority or a public agency — the proposed contractor has to furnish, at their own cost, both a performance bond and a payment bond.

Each is set by the governmental unit at no less than 25 percent of the contract amount. The payment bond exists purely to protect the people supplying labor and materials underneath the principal contractor. On top of that, many solicitations ask for a bid bond — commonly five percent — just to submit at all.

So the sequence on a $300,000 public project is: post a bid bond to be allowed to offer, and if you win, produce a performance bond and a payment bond before anybody signs anything.

Why that is harder than it sounds

A bond is not an insurance policy with a different name, and treating it as one is where the time gets lost.

When you buy insurance, you are transferring a risk to an insurer who expects to pay some claims. When a surety issues a bond, it expects to pay nothing. A surety is guaranteeing that you will finish the work, and if you do not, it pays out and then comes after you to recover it. You will normally sign a personal indemnity agreement saying exactly that.

Which means a surety is making a credit decision. It will want to see:

Financial statements, often reviewed or audited rather than internally prepared, usually for several years.
Working capital — can you carry payroll and materials while a public body takes its time paying.
A completed-work history of jobs of similar size and type. Not quoted. Completed.
Personal credit and personal indemnity from the owners.

Every one of those takes time that cannot be compressed. A young company does not have a multi-year statement history. A company that has never run a $200,000 contract has no evidence it can. Capacity gets extended gradually, in both single-job and aggregate limits, as you finish progressively larger work.

This is the part worth internalizing: bonding capacity is earned in increments and cannot be bought in a hurry. Licensing is a test and a fee. Insurance is a phone call to an agent. A surety relationship is a track record, and there is no version of it you can acquire the month you decide you want public work.

Our own position, since it would be strange to write this and not say

We do not have a surety line. That is a straightforward statement of where this company is, not a complaint about the system.

What it means practically is that public contracts over the $50,000 statutory threshold are not ones we can accept, and we would rather publish that than have it emerge at award — which is the genuinely damaging version, because by then an agency has spent its own time on an evaluation that cannot result in a contract.

What is open to us is the work underneath, and that turns out to be most of what a facilities list actually contains. We are also working on the rest of it in the sensible order: insurance limits and endorsements first because they are quick, then the license, then a surety conversation that will go much better in two years with a file of completed public purchase orders behind it than it would go today with none.

What to do instead of waiting

If you are a contractor who wants public work and has no bond, the under-threshold band is not a consolation prize. It is the on-ramp, and it builds the exact file a surety will later ask to see.

Register as a vendor everywhere, including the places that do not publish. Several agencies in this region never advertise small work; they notify the vendors already on their list. If you are not on it, the work is invisible to you and you will conclude, wrongly, that there is none.

Get the insurance right before you need it. Agencies specify limits and often require being named as an additional insured. Adding an endorsement takes days and some carriers are awkward about it. Find out what your carrier will and will not do before you promise it in a quote, because a small award falling over on an insurance box is a self-inflicted and very common failure.

Be boring about documentation. Purchase order number on the invoice. Photographs numbered against the work order. Lien waivers at completion. Quotes that read against the agency's own item numbers. This is the least skilled part of the job and the largest single reason a buyer calls the same contractor twice.

Finish things, and keep the record of having finished them. Completed contracts are the asset a surety underwrites. Every small public purchase order you close cleanly is part of the file you will hand over in a few years when you ask for capacity.

The order that actually works

Insurance, because it is fast. Vendor registrations, because they are free and they are how you find out work exists. Under-threshold work, because it is open to you today and it builds the history. Licensing as it applies to what you are actually doing. Bonding last, when there is something for a surety to read.

Running that list in the other direction — bonding first, work last — is how contractors spend two years deciding public work is closed to them, while a maintenance list two miles away goes unquoted.