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 bid bond needs.
What Are Arkansas Bid Bonds?
Arkansas bid bonds are designed to protect public and private construction project owners against financial losses caused by contractors who:
- Submit inaccurate or unrealistic bids,
- Don’t have the capacity to purchase the necessary performance and payment bonds if awarded the contract, or
- Don’t accept the job if chosen as the winning bidder.
An Arkansas bid bond is a contractor’s guarantee that none of the above will occur. If the contractor (the bond’s “principal”) doesn’t live up to that guarantee, the bond provides a way to compensate the project owner (the bond’s “obligee”) for monetary damages.
Who Needs Them?
Arkansas state or local contracting authorities can require a bid bond, and so can private project owners. When a bid bond is required, the usual amount is 5 to 10% of the total bid price.
How Do Arkansas Bid Bonds Work?
The third party to an Arkansas bid bond, along with the obligee and the principal, is the “surety” — the bond’s guarantor. The principal is legally obligated to pay valid claims against the bid bond, but the surety guarantees their payment. To guarantee the swift resolution of a claim, the surety will pay the claimant directly, and then be repaid by the principal. Not repaying the surety is likely to result in the surety taking legal action against the principal to recover the claim amount.
How Much Do They Cost?
The premium cost of an Arkansas bid bond is a small percentage of the required bond amount. It is calculated by multiplying the bond amount by the premium rate set by the surety for each principal through an assessment of the risk to the surety. The main concern is the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is best measured using the principal’s personal credit score.
A high credit score means the risk to the surety is low, and a low score means the risk is higher. Low risk merits a low interest rate, while high risk calls for 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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