Arkansas Performance Bonds

Arkansas Performance Bonds

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 Arkansas Performance Bonds?

Arkansas performance bonds help prevent financial harm to construction project owners when a contractor defaults on a job or fails to complete the work in accordance with contract specifications. It can be very costly for a project owner if work needs to be redone or another contractor is brought in to finish the job.

Who Needs Them? 

Under Arkansas's “Little Miller Act,” performance bonds are required from contractors selected for public works and other state-funded projects valued in excess of $50,000. (They must purchase payment bonds as well.) The performance bond must be for an amount equal to the contract value. The contractor cannot sign a contract that falls under the Little Miller Act until a performance bond has been provided to the contracting entity. 

The Little Miller Act applies only to government-funded contracts, not to private construction projects. But, many private project owners choose to require performance bonds from their contractors, particularly for higher-value contracts.

How Do Arkansas Performance Bonds Work?

There are three parties to an Arkansas performance bond:

  • The public or private project owner requiring the bond (known as the “obligee”)
  • The contractor furnishing the bond (the ‘principal”)
  • The bond’s guarantor (the “surety”)

The principal bears the full legal obligation to pay a valid claim from the obligee, but the surety guarantees the payment of valid claims. That guarantee takes the form of an extension of credit for the purpose of paying a claim if and when that becomes necessary. 

If the surety’s investigation proves a claim submitted by the obligee to be valid, the surety will pay it initially on the principal’s behalf. The principal must then repay that debt to the surety, according to the surety’s credit terms. Failing to repay the credit extended by the surety is likely to result in the surety taking legal action to recover the claim amount, plus court costs and legal fees.

How Much Do They Cost?

The annual premium for an Arkansas performance bond depends on two variables: the dollar amount of the bond set by the obligee and the premium rate assigned by the surety. The premium rate is based on an underwriting assessment of the risk of the surety not being repaid for a claim paid on the principal’s behalf. The standard measure of that risk is the principal’s personal credit score. 

A high credit score is taken as reliable evidence of a low risk that the principal wouldn’t repay the surety. And low-risk calls for a low-interest rate. A low credit score, on the other hand, is viewed as a sign of higher risk, which warrants 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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