Alabama Construction Bonds
Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.
What Are They?
Alabama construction bonds are surety bonds that help ensure contractor integrity and protect licensing authorities, project owners, and the public against financial loss. Specifically, they provide protection against losses stemming from contractors’ failure to comply with regulations governing construction in Alabama and/or contractual violations. When such losses occur, the injured party can file a claim for monetary damages.
Construction bond requirements may be imposed by the state, by local government entities, or by public or private project owners.
What Alabama Construction Bonds May Be Needed?
Commonly required Alabama construction bonds include
- Contractor license bonds,
- Bid bonds,
- Performance bonds,
- Payment bonds,
- Maintenance bonds,
- Subdivision improvement bonds.
Other bonds are only required in the context of certain types of construction, such as solar decommissioning bonds.
How Do They Work?
All Alabama construction bonds are legally binding on three parties: the “obligee” requiring the bond, the “principal” purchasing the bond, and the “surety” guaranteeing claims.
Although the principal (the contractor) is legally obligated to pay all claims, the surety’s investigation proves to be valid, and the usual practice is for the surety to pay a claim on the principal’s behalf. This creates a debt the principal must, by law, repay to the surety. Nonrepayment can result in the principal being sued by the surety to recover the debt.
What Do They Cost?
As noted earlier, the obligee sets the bond’s penal sum, and the surety assigns the premium rate. Multiplying two factors—the required bond amount and the premium rate—yields the annual premium for an Alabama construction bond.
The surety sets the premium rate for each bond based largely on the principal’s personal credit score, which serves as a measure of the risk of the surety not being repaid for claims paid on the principal’s behalf.
A high credit score is equated with a low-risk level, which results in a low premium rate. A low credit score indicates higher risk, leading to a higher premium rate.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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