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?
Delaware construction bonds provide important protection for project owners, both public and private, against financial harm caused by the unethical or unlawful actions of the contractors they hire for their construction projects.
Construction bonds help prevent such financial losses by requiring the contractors who purchase them to operate in full compliance with applicable laws and regulations. But when a regulatory or contractual violation does occur and results in a financial loss, the injured party can seek compensation by filing a claim for monetary damages against the construction bond.
What Delaware Construction Bonds May Be Needed?
Certain construction bonds—specifically performance and payment bonds—are state-mandated for public works projects that fall under the requirements of the state’s Little Miller Act.
Increasingly, private project owners also require performance and payment bonds, particularly for larger projects. Delaware project owners may also need other types of construction bonds, such as
- Bid bonds,
- Maintenance bonds,
- Subdivision improvement bonds,
- Solar decommissioning bonds,
- Right of way bonds, and more.
How Do They Work?
Delaware construction bonds are legally binding on three parties known as:
- The obligee (the party requiring the bond)
- The principal (the contractor purchasing the bond)
- The surety (the bond’s guarantor)
The principal is legally obligated to pay all valid claims, but the surety has agreed to extend credit to the principal to guarantee the payment of claims. So the surety pays a valid claim initially as a loan to the principal. Not repaying the resulting debt to the surety is likely to result in the surety taking legal action against the principal to recover the funds.
What Do They Cost?
The principal pays an annual premium calculated by multiplying the bond amount required by the obligee and the premium rate set by the surety through an underwriting assessment of the risk involved. 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 principal with a high credit score is a low risk to the surety, which deserves a low premium rate. However, a principal with lesser credit is a greater 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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