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 payment bond needs.
What Are Alaska Payment Bonds?
Without a payment bond, project owners could have their property encumbered by mechanic’s liens if their contractor fails to pay subcontractors or suppliers. Instead, a subcontractor or supplier that has not been paid must file a claim against the payment bond the project owner (known as the “principal”) has furnished the project owner (the bond’s “obligee”). The payment bond legally obligates the principal to pay all valid claims filed by unpaid subcontractors or suppliers within a certain time period following project completion.
Who Needs Them?
Alaska’s “Little Miller Act,” the state’s version of the federal Miller Act, is found in the Alaska Statutes, Title 36, Chapter 35, under “Public Works Contract Bonds.” It mandates payment bonds for state-funded construction projects. The required bond amount is tied to the project value, as shown below.
| Project Value | Bond Amount Needed |
| Over $100,000 to $1 million | 50% of project value |
| Over $1 million to $5 million | 40% of project value |
| Over $5 million | Flat amount of $2.5 million |
Although private construction projects aren’t subject to Alaska’s Little Miller Act, many private project owners protect their property against mechanic’s liens by requiring payment bonds from contractors.
How Do Alaska Payment Bonds Work?
The third party to an Alaska payment bond is the bond’s guarantor (the “surety”). The surety guarantees that all valid claims will be paid by agreeing to extend credit to the principal for that purpose if necessary.
The surety will confirm that a claim is valid and, if it is, will pay it on the principal’s behalf, drawing against the line of credit established for the principal when the payment bond was purchased. The principal is legally obligated to repay the resulting debt in accordance with the surety’s credit terms. The surety is indemnified by the payment bond and can take legal action to recover the debt if the principal fails to repay it.
How Much Do They Cost?
Two factors are multiplied to calculate the premium cost of an Alaska payment bond: the bond amount and the premium rate. The obligee establishes the bond amount, and the surety sets the premium rate through an underwriting assessment of the credit risk involved. This is the risk of the principal not repaying the credit extended by the surety in paying a claim. Credit risk is measured on the basis of the principal’s personal credit score.
A principal with a high credit score is regarded as a low risk, which results in a low premium rate. On the other hand, a low credit score indicates an elevated credit risk, which is offset by assigning 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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