Georgia Construction Bonds
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?
Georgia construction bonds are surety bonds that protect public and private project owners against financial harm caused by the contractors they hire. They provide two types of protection.
First, they help prevent such losses by obligating contractors to operate in accordance with the laws and regulations that govern Georgia’s construction industry. And, in the event of contractor violations that cost the project owner (the “obligee” requiring the bond), the injured party can file a claim and be compensated for monetary damages by the contractor (the bond’s “principal”).
What Georgia Construction Bonds May Be Needed?
Under Georgia’s Little Miller Act, performance and payment bonds are mandatory for certain public works projects. These are becoming increasingly common in private construction as well. Other types of Georgia construction bonds may also be required, such as
- Contractor license bonds,
- Bid bonds,
- Maintenance bonds,
- Subdivision improvement bonds,
- Solar decommissioning bonds,
- Right of way bonds, and more.
How Do They Work?
In addition to the obligee and the principal, there is a third party to every Georgia construction bond—the “surety.” The surety is the party guaranteeing the payment of claims. Because of that guarantee, the surety will pay a valid claim initially as an extension of credit to the principal. The principal must subsequently repay the resulting debt according to the terms established by the surety’s terms. Failing to repay the debt typically results in the surety taking legal action against the principal to recover the funds.
What Do They Cost?
The annual premium paid by the principal is the result of multiplying the bond amount required by the obligee and the premium rate the surety assigns to the principal through underwriting. The underwriting goal is to arrive at a premium rate that reflects the relative risk of the principal not repaying the surety for claims paid on the principal’s behalf. That risk is measured in large part by the principal’s personal credit score.
A high credit score is correlated with low risk and earns the principal a low premium rate. Conversely, a low credit score is a red flag for greater risk, which requires 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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