Surety Bond Encyclopedia

Mechanical Contractors License Group 5 ($300,000) Bond - Statewide in South Carolina

Brief Summary

Two things to settle before buying. First, the mechanical ladder is not the general contractor ladder, and the step into Group 5 is steep: Group 4 mechanical is a $60,000 bond, Group 5 is $300,000. Second, this bond is optional. It exists so you can skip the financial statement, and Group 5 is the only mechanical tier where that statement has to be a CPA audit at application and a reviewed or audited statement at every renewal. Price the bond against the audit.

Section 40-11-262 of the South Carolina Code lets an applicant provide a surety bond in place of the financial statement required by section 40-11-260, in the same amount as the net worth for the applicant's license group, filed with the initial or renewal application. Mechanical contractor Group 5 carries unlimited bid authority and a $300,000 net worth requirement or $200,000 working capital, so the bond amount is $300,000. The bond lists the State of South Carolina as obligee, must be continuous in form, and must be maintained for as long as the license is held or until the licensee files a financial statement meeting the net worth requirement.

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How to Apply for a Mechanical Contractors License Group 5 ($300,000) Bond:

Confirm the trade and the group. Mechanical Group Five is a $300,000 bond. Mechanical Group Four is $60,000, and the general contractor ladder is different again.
Confirm you need unlimited bid authority. Group Four covers bids up to $400,000 at a fifth of the bond amount.
Compare the bond against the alternative. Group Five on the financial statement route requires an audit by a CPA or PA at initial application and a reviewed or audited statement at renewal.
Legal entity name exactly as it appears on the LLR license application.
Company financial statements, work in progress and completed project history for the surety's underwriting file.
Owner or officer name, home address and Social Security number for the credit review, with personal indemnity expected at this size.
Complete the bond application and review the quoted premium and any collateral terms.
Pay the premium and have the surety execute the LLR Surety Bond for Mechanical Contractors at a $300,000 penal sum, continuous in form.
File the bond with the initial or renewal application to the Contractor's Licensing Board.
Keep the bond in force while the license is held, or until you file a financial statement showing $300,000 net worth.

Detailed Information About the South Carolina Mechanical Contractors License Group 5 ($300,000) Bond:

The mechanical ladder, which is not the general contractor ladder

Section 40-11-260 sets separate schedules by trade. For mechanical contractors:

Group One, bids up to $35,000, $7,000 net worth or $3,500 working capital
Group Two, bids up to $100,000, $15,000 net worth or $10,000 working capital
Group Three, bids up to $200,000, $30,000 net worth or $20,000 working capital
Group Four, bids up to $400,000, $60,000 net worth or $40,000 working capital
Group Five, unlimited bids, $300,000 net worth or $200,000 working capital

Section 40-11-262(A) then allows an applicant, in lieu of providing a financial statement showing minimum net worth or working capital, to provide a surety bond from a surety authorized to transact surety business in this State in the same amount as the net worth for the applicant's license group, with the initial or renewal application.

The bond follows the net worth column, so Group Five is $300,000 rather than the $200,000 working capital figure. The LLR mechanical bond package prints the matching ladder, $7,000, $15,000, $30,000, $60,000 and $300,000.

Note how sharp the last step is. Group Four caps you at $400,000 bids on a $60,000 bond. Group Five removes the cap and costs $300,000 of penal sum. If most of your work fits under $400,000, confirm you actually need Group Five before buying five times the bond.

General contractor groups run higher across the board, at $20,000, $60,000, $150,000, $250,000 and $350,000. Holding both licenses means tracking two ladders.

Why Group Five applicants reach for the bond

The Board's financial statement requirements escalate by group. Groups One and Two file self prepared notarized statements. Groups Three and Four file a compilation by a CPA or PA at initial application or upgrade, and may file a self prepared notarized statement at renewal.

Group Five is the outlier. An initial application or upgrade takes an audit by a CPA or PA, and renewals take a reviewed or audited statement by a CPA or PA. That is a recurring accounting cost for as long as you hold the license.

The surety bond replaces the financial statement entirely, audit included. For a mechanical contractor that would otherwise pay for an audit each cycle, the comparison is a straightforward cost question.

Optional, and reversible

Nothing in Chapter 11 requires a South Carolina mechanical contractor to carry a surety bond to hold a license. Section 40-11-262(B) requires the bond to be continuous in form and maintained in effect for as long as the applicant maintains the license, or until the applicant submits a financial statement showing that it meets the net worth requirements.

That is the exit. File a qualifying statement and the bond comes off.

Who it protects

The bond lists the State of South Carolina as obligee and runs for the benefit of any person who is damaged by an act or omission of the applicant constituting a breach of a construction contract or a contract for the furnishing of labor, materials, or professional services for construction undertaken by the applicant, or by any unlawful act or omission of the applicant in performing construction. The LLR mechanical form names the South Carolina Contractor's Licensing Board, the State of South Carolina, and any person or business sustaining damage.

Owners, subcontractors and suppliers all fit that description, which is why sureties underwrite this closer to contract surety than to a small license bond.

It does not replace a project bond

Section 40-11-262(B) states the bond is in addition to, and not in lieu of, any other surety bond required of the applicant by law or regulation, or by any party to a contract with the applicant. Filing it does nothing for a payment and performance bond an owner or general contractor requires on a job.

Cancellation, and a ten day fuse

Section 40-11-262(C) permits cancellation on thirty days notice, and on cancellation the licensee has ten days to provide proof of meeting the net worth requirements or face suspension. The LLR form gives the surety or the principal the right to cancel by filing written notice with at least thirty days notice before the effective date.

For a Group Five licensee that would be ten days to produce an audit, which is not realistic. Treat any non renewal signal as immediate.

The Board can raise the number

Section 40-11-262(E) allows the board to require an increased bond amount based on the severity of a violation, and to reduce the amount after one year where corrective action is demonstrated. The published ladder is a starting point, not a cap for a licensee with a disciplinary record.

Renewal and fees

Licenses may be renewed biennially, and a licensee applies to the department for renewal by the expiration date on a form approved by the board. Because the bond is filed with the initial or renewal application, both run on the same two year cycle.

Section 40-11-50 on license fees was repealed by 2014 Act No. 207, and the current sections refer to all required fees without stating amounts, so confirm the fee schedule with LLR rather than relying on a figure quoted elsewhere.

Eligibility and Requirements for a South Carolina Mechanical Contractors License Group 5 ($300,000) Bond:

A surety authorized to transact surety business in South Carolina.
Penal sum of $300,000, matching the net worth requirement for mechanical contractor Group Five.
Continuous in form and maintained while the license is held.
State of South Carolina listed as obligee, with the Contractor's Licensing Board and damaged persons named on the LLR mechanical bond form.
For the benefit of any person damaged by a breach of a construction contract or a contract for labor, materials or professional services, or by an unlawful act or omission in performing construction.
In addition to, not in lieu of, any other surety bond required by law, regulation or contract.
Filed with the initial or renewal license application.
Full underwriting of the company. At this penalty the surety reviews financial statements, backlog and experience, not just credit.

South Carolina Mechanical Contractors License Group 5 ($300,000) Bond FAQs:

Is this bond required for a mechanical Group Five license?

No. Section 40-11-262(A) offers it in lieu of providing the financial statement showing minimum net worth or working capital required by section 40-11-260. A contractor that documents $300,000 net worth or $200,000 working capital does not file a bond.

Why $300,000 and not $200,000?

Because the statute sets the bond in the same amount as the net worth for the applicant's license group. Mechanical Group Five net worth is $300,000. The $200,000 figure is the working capital alternative on the financial statement route, and the bond does not track it.

What are the other mechanical groups?

Group One is a $35,000 bid limit with $7,000 net worth or $3,500 working capital, Group Two is $100,000 with $15,000 or $10,000, Group Three is $200,000 with $30,000 or $20,000, Group Four is $400,000 with $60,000 or $40,000, and Group Five is unlimited with $300,000 or $200,000. The LLR mechanical bond package prints penal sums of $7,000, $15,000, $30,000, $60,000 and $300,000.

Is this the same as the general contractor bond?

No. General contractor groups run $20,000, $60,000, $150,000, $250,000 and $350,000 against bid limits of $100,000, $400,000, $1,000,000, $3,000,000 and unlimited. The two ladders are separate, and a contractor holding both licenses tracks both.

Why do Group Five applicants use the bond?

Because of what the alternative costs. The Board requires an audit by a CPA or PA for a Group Five initial application or upgrade, and a reviewed or audited statement at renewal. Groups One and Two file self prepared notarized statements, and Groups Three and Four file a CPA compilation at application. The bond replaces the financial statement entirely.

Can I ever drop the bond?

Yes. Section 40-11-262(B) requires the bond to be maintained for as long as the applicant maintains the license or until the applicant submits a financial statement showing that it meets the net worth requirements.

Who can claim against it?

Any person damaged by an act or omission of the licensee constituting a breach of a construction contract or a contract for the furnishing of labor, materials or professional services for construction undertaken by the licensee, or by any unlawful act or omission in performing construction. The LLR form names the Board, the State, and any person or business sustaining damage.

Does it replace payment and performance bonds on my projects?

No. Section 40-11-262(B) states the bond is in addition to, and not in lieu of, any other surety bond required by law or regulation or by any party to a contract with the applicant.

What happens if the surety cancels?

Section 40-11-262(C) allows cancellation on thirty days notice and gives the licensee ten days after cancellation to provide proof of meeting the net worth requirements or face suspension. The LLR form also lets the principal cancel on at least thirty days written notice.

Can the Board require more than $300,000?

Yes. Section 40-11-262(E) permits the board to require an increased bond amount based on the severity of a violation, and to reduce it after one year where corrective action is demonstrated.

When do I renew?

Licenses may be renewed biennially, and the licensee applies to the department for renewal by the expiration date on a board approved form. The bond is filed with the initial or renewal application, so both run on the same two year cycle.

What will the bond cost?

Premium is a percentage of the $300,000 penal sum, set by the surety after a full underwriting review rather than from a rate table. Because the bond answers for breach of construction contracts, sureties evaluate it much as they evaluate contract surety: financial statements, working capital, backlog and work in progress, completed project history, bank and supplier references, years in business, and the owners' credit with personal indemnity. A well capitalized mechanical contractor with a clean history prices at the low end of a surety's filed rates. A contractor using the bond specifically because it cannot document $300,000 net worth prices higher and may face collateral or an outside indemnitor. Weigh the premium against both the CPA audit cost and the option of staying at Group Four.