Is Construction Arbitrage Legal in Michigan?

Yes. Construction arbitrage is legal in Michigan. Acting as the prime contractor, subcontracting the physical work to specialist trades, and keeping the spread between those two numbers is standard practice here and always has been. The question is compliance: the right LARA licence for residential jobs, correct sub classification under Michigan workers' comp law, and - for commercial work - understanding that Michigan has no statewide general contractor licence at all.

Some people call this contractor arbitrage or construction dropservicing - same model, different name. I have looked at the Michigan market carefully. It is significant: Detroit, Grand Rapids, Lansing, Ann Arbor, and a wide belt of suburban and exurban growth across the lower peninsula. The compliance picture is split cleanly between residential and commercial, and understanding that split is what separates a clean operation from a risky one.

Is construction arbitrage legal in Michigan - the direct answer#

Construction arbitrage means you are the named contractor on the prime contract with the client. You subcontract the actual work to vetted trades. The margin between what the client pays you and what you pay the subs is the business. No Michigan statute prevents you from subcontracting all the physical work - that is how every large construction company in the state operates.

What Michigan regulates is who can hold that prime contract for residential work, and what obligations you carry for the people you deploy on site. Get those two things right and the model is fully legal.

The Michigan Department of Licensing and Regulatory Affairs (LARA), specifically its Bureau of Construction Codes (BCC), is the primary regulator for residential construction in the state.

Michigan commercial construction: no statewide GC licence required#

For commercial general contracting in Michigan - offices, retail, industrial properties, multi-family buildings above three units - Michigan has no statewide general contractor licence. None. Michigan does not require you to hold a credential, sit an exam, or prove experience to act as the prime contractor on a commercial project.

This is the most important sentence for anyone running construction arbitrage on commercial jobs in Michigan: the compliance floor is your business registration, your general liability insurance, and clean sub classification under workers' comp rules. Set those up correctly and you can quote commercial work in Michigan from day one.

That said, local municipalities matter. Detroit, for example, has its own building permit and contractor registration processes administered through the Buildings, Safety Engineering, and Environmental Department (BSEED). If you are operating commercially in a major Michigan city, check the local permit desk before you start pricing jobs. Requirements vary by city.

Specialty trades pull their own permits and carry their own statewide licences regardless of the project type. An electrician on your commercial job still needs their Michigan electrical licence. That is not your licence to carry - it is theirs.

Residential work: the LARA licence you need#

This is where Michigan differs most sharply from states like Pennsylvania or Illinois. Michigan's residential licensing framework under MCL 339.2401-339.2412 sets one of the lower dollar thresholds in the country.

Under MCL 339.2403, anyone contracting to build, repair, or alter a residential structure - defined as a 1-3 family dwelling - where the total value of labour and materials is $600 or more must hold a valid licence from LARA. The $600 trigger catches virtually every job you will ever quote on the residential side.

Two licence types cover residential construction arbitrage:

Residential Builder (RB) - the full-scope licence. Covers new construction, additions, and complete remodelling of 1-3 family dwellings. This is the one you need if you want to run construction arbitrage across the full residential market, including new builds. Requirements:

• Three years of verifiable residential construction experience in the prior ten years
• 60 hours of LARA-approved prelicensure education
• Pass two PSI examinations (trade knowledge and Michigan law)
• Minimum insurance: $100,000 per occurrence in general liability

Maintenance and Alteration Contractor (MAC) - the narrower licence. Covers repair, maintenance, and alteration work on existing residential structures. It does not cover new construction or full replacement projects. Requirements:

• 60 hours of LARA-approved prelicensure education
• Pass PSI examinations (experience threshold is lower than RB)
• Minimum insurance: $100,000 per occurrence in general liability

Both licences are renewed through LARA on a two-year cycle. Michigan does not require a surety bond for either licence - the insurance requirement is the financial responsibility gate.

Verify subcontractor licences through LARA's online licence search before deploying them on any residential job. The electrical licence sits with the Bureau of Construction Codes for electrical contractors; plumbers and mechanical contractors have their own licensing boards under LARA. Your Residential Builder licence does not cover those trades.

The penalty for unlicensed residential contracting:

Contracting on a residential project over $600 without the required LARA licence is a misdemeanour under MCL 339.2412(4). Beyond the criminal exposure, an unlicensed contractor can face BCC enforcement action, fines, and a finding that sits on their record. The BCC investigates consumer complaints and publishes enforcement decisions. It is a small market and word travels.

Insurance: what Michigan and your clients actually expect#

The LARA licence minimum - $100,000 per occurrence in general liability - is a floor, not a working number. Every client worth having in Michigan will ask for more. I run $1 million per occurrence as the floor on any job. Most commercial clients and any municipality will want to see $1-2 million per occurrence as a requirement on the certificate of insurance before they will even discuss a contract.

Get your GL set at $1 million minimum before you start quoting. The annual premium for a small Michigan contractor is a few hundred to a couple of thousand dollars depending on turnover and trade mix - not a number worth being under-insured to save on.

Workers' compensation: the sub classification question#

Michigan's workers' compensation system, governed by the Workers' Disability Compensation Act (MCL 418), requires coverage for any employer with three or more employees, or with one employee who works 35 or more hours per week for 13 or more weeks during the year. The trigger is low.

The core question for construction arbitrage is whether your subcontractors are genuine independent businesses or whether they look like employees under Michigan law.

Michigan uses a three-part statutory test under MCL 418. A worker is an independent contractor if they:

1. Maintain a separate business
2. Hold themselves out to the public and render service to the public as an independent contractor
3. Are themselves an employer subject to the Act

Critically - and this is the part most operators miss - under Michigan Supreme Court interpretation, a worker does not have to fail all three to be classed as an employee. The test works in the sub's favour: if any one of the three is satisfied, they are an independent contractor. That means a sub who runs a genuine trade business, has their own clients, and carries their own workers' comp satisfies the test.

What fails the test is a one-person handyman who only works for you, uses your materials, takes your daily instructions on method, and has never invoiced anyone else. That person will be treated as your employee regardless of what the paperwork says, and if they are injured on your job, the liability is yours.

Protect yourself practically:

• Get a certificate of workers' compensation insurance from every sub before they set foot on site
• Use a proper written subcontract agreement for every job - see what contracts you need for construction arbitrage
• Work with subs who have their own established trade operations, their own tools, their own clients
• If a sub has no workers' comp and cannot satisfy the independent contractor test, find a different sub

If a sub carrying no workers' comp is injured on your job and is later reclassified as your employee, the liability for their medical and wage-loss benefits transfers to you. Michigan has a private insurance market for workers' comp - there is no state monopoly fund as in some other states - so shopping for a competitive policy is straightforward.

What the compliance picture looks like in practice#

A clean Michigan construction arbitrage setup for residential work has:

• LARA Residential Builder licence (or MAC for maintenance/alteration only) - apply through LARA at michigan.gov/lara
• General liability insurance at $1 million per occurrence minimum (the LARA floor is $100k, but no one will hire you at that level)
• Sub agreements in writing for every job, signed before work starts
• Workers' comp certificates from every sub, collected before they start
• Verified licences for every specialty trade you deploy (electrical, plumbing, HVAC)

For commercial-only work:

• Standard business registration (LLC, EIN)
• $1 million+ GL insurance
• Clean sub classification - same workers' comp rules apply regardless of project type
• Local permit and registration checks in any municipality you intend to work in

Michigan is one of the cleaner states to operate in commercially, and the residential licensing framework - while it has a low dollar trigger - is a real credential that adds credibility with clients. Getting licensed properly is not a cost to avoid. It is the first signal to any client that you are a legitimate operation.

If you are at the stage of figuring out how to find subcontractors in Michigan - trades who will pass the independent contractor test because they run genuine businesses - that is where the work starts. The licence gets you in front of clients. The subs are what makes the jobs run.

Last checked: 21 August 2026.