Surety Bond Professionals is a family owned and operated bonding agency with over 75 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your performance bond needs.
What Are Alaska Performance bonds?
Alaska performance bonds protect contracting authorities and project owners against the negative financial consequences of a contractor’s violation of regulatory or contractual requirements. A contractor’s failure to complete a job satisfactorily can cost the project owner a great deal, for example, bringing in another contractor to finish the work.
Alaska performance bonds serve both to prevent financial losses attributable to nonperformance and to compensate the injured party if they do occur.
Who Needs Them?
Alaska ’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds from contractors awarded public works projects valued in excess of $100,000. For projects between $100,000 and $1 million, the required performance bond amount is 50% of the contract value. And for projects valued between $1 million and $5 million, it’s 40% of the contract value. For projects above $5 million, the bond must be for exactly $2.5 million. (Payment bonds in the same amounts are also required.)
How Do Alaska Performance Bonds Work?
There are three parties to an Alaska performance bond, referred to in surety bond lingo as:
- Obligee—the contracting authority or project owner requiring the bond
- Principal—the contractor providing the bond
- Surety—the bond’s guarantor
The principal is legally obligated to pay any claim the surety determines to be valid. The surety, in guaranteeing a performance bond, agrees to extend credit to the principal in order to pay a claim, if necessary. Taking no chances on something going awry, the surety pays the claim initially and then is repaid by the principal. If the principal fails to repay that debt, the surety is likely to take the matter to court to recover the funds.
How Much Do They Cost?
The premium cost of an Alaska performance bond is the result of multiplying two factors—the bond amount (also known as the “penal sum”) and the premium rate. The surety sets the premium rate based on an assessment of the risk of not being repaid for claims paid on behalf of the principal. That assessment leans heavily on the principal’s personal credit score.
A high credit score is the surest sign of financial responsibility and low risk to the surety. So, a high credit score results in a low premium rate. But, a low credit score means the risk is higher, so the premium rate will be higher.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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