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?
Arkansas construction bonds provide two kinds of protection, preventive and compensatory, for public and private project owners and the public against financial losses due to a contractor’s unlawful or unethical actions. Construction bonds help prevent such losses by requiring contractors to comply with the regulations governing construction within Arkansas. They also provide a way for those who have experienced a covered loss to obtain compensation for monetary damages.
What Arkansas Construction Bonds May Be Needed?
Arkansas’ Little Miller Act requires contractors to provide performance bonds and payment bonds for public works projects valued at more than $50,000. Private project owners may also require these bonds, particularly for larger projects.
Other Arkansas construction bonds that project owners may require include
- Bid bonds,
- Maintenance bonds,
- Subdivision improvement bonds,
- Solar decommissioning bonds,
- Right of way bonds, and more.
How Do They Work?
Arkansas construction bonds bring together three parties in a legally binding contract. These parties are known as:
- The obligee (the project owner or other party requiring the bond)
- The principal (the contractor purchasing the bond)
- The surety (the bond’s guarantor)
Although the principal is legally obligated to pay all valid claims, the usual practice is for the surety to pay the claimant directly as a loan to the principal. Failing to repay the resulting debt to the surety can result in the surety suing the principal to recover the funds.
What Do They Cost?
The annual premium for an Arkansas construction bond is the product of multiplying two factors: the required bond amount established by the obligee and the premium rate assigned by the surety through underwriting. The biggest underwriting concern is the risk of the principal not repaying the surety for claims paid on the principal’s behalf. That risk is measured based on the principal’s personal credit score.
A high credit score means the risk to the surety is low, which makes the premium rate low as well. A low credit score, however, is a sign of higher risk, which demands 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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