In this article, we’ll walk you through everything you need to get a contractor license in the state of Pennsylvania
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What Contractor Licenses Are Issued in Pennsylvania?
Pennsylvania is unusual in that all contractors, both general and specialty, are licensed only at the local level. However, anyone who makes more than $5,000 a year doing home improvement work must comply with the Home Improvement Consumer Protection Act of 2008 by registering with the Attorney General’s Office.
What Are the Steps in the Licensing Process?
Many municipalities require specialty contractors to provide proof that they have passed the exam that allows them to move from apprentice to journeyman status in their trade. In addition to passing the appropriate exam, they may be subject to certain insurance and bonding requirements.
Each local jurisdiction that requires licensing of general contractors has its own eligibility criteria and licensing procedures. While those procedures don’t involve taking an exam, they may entail providing evidence of sufficient liability insurance and workers’ compensation coverage, if applicable, as well as a contractor license bond.
Why is a Contractor License Bond Required?
When a municipal licensing authority requires a contractor license bond, the purpose is to ensure the contractor’s ethical business practices and compliance with local building codes. That’s what a contractor guarantees in purchasing a contractor license bond. The terms of the bond give the licensing authority and the public the right to file a claim for damages in the event of a financial loss resulting from the contractor’s violation of the surety bond agreement.
How Are Contractor License Bond Claims Paid?
There are three parties to every contractor license bond, known in surety bond lingo as the “obligee,” the “principal,” and the “surety.” The obligee is the licensing authority, which establishes the required bond amount. The principal is the contractor, who is legally obligated to pay all valid claims up to that required bond amount. And the surety is the agency guaranteeing that the principal will live up to that obligation.
As the guarantor, the surety investigates every claim to determine whether it’s legitimate, and if it is, will pay it initially on the principal’s behalf. But that does not relieve the principal of the obligation to pay; it simply shifts that obligation to repayment of the surety. If the principal fails to repay the debt created by the surety’s payment to the claimant, the surety can take legal action to recover the amount of the claim plus court costs and legal fees.
How Much Does a Pennsylvania Contractor License Bond Cost?
The annual premium for a Pennsylvania contractor license bond is a small percentage of the required bond amount established by the obligee. That percentage, the bond’s premium rate, is set by the surety on a case-by-case basis.
The primary underwriting concern is the possibility that the principal might not repay the surety for claims paid on the principal’s behalf. The best measure of that risk is the principal’s personal credit score—a high credit score suggests a low-risk level and vice versa. A low risk principal will be assigned a low premium rate, while someone presenting a higher risk to the surety will pay a higher premium rate. At the low end of the risk continuum, the premium rate should be between 1% and 2%, while at the high end it could be up to 3%.
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