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 Idaho Performance Bonds?
Idaho performance bonds provide important protection for project owners who experience financial losses due to a contractor’s failure to complete a job in compliance with contractual specifications and legal requirements. The bond provides compensation for monetary damages incurred in remedying the situation, perhaps by bringing in another contractor to finish the job.
Who Needs Them?
Idaho’s “Little Miller Act,” formally called the Public Contracts Bond Act, is the state’s version of the federal Miller Act, which establishes certain bonding requirements for federally funded construction projects. Idaho’s version requires contractors to furnish a performance bond in an amount equal to 85% of a public works project’s value before entering into a contract for the job. (A payment bond is required as well.)
Although the Little Miller Act does not apply to private construction projects, private project owners often require performance bonds to protect themselves and their investors.
How Do Idaho Performance Bonds Work?
An Idaho performance bond is a legally binding agreement among three parties:
the obligee—the contracting authority or private project owner requiring the bond,
the principal—contractor purchasing the bond, and
the surety—the bond’s guarantor.
If and when the obligee files a performance bond claim, the surety will investigate to determine its legitimacy and approve it for payment. The principal is legally obligated to pay a valid claim, but as the guarantor, it’s up to the surety to make sure that the claimant is compensated. Having agreed to extend credit to the principal for the purpose of paying a valid claim, the surety actually will pay the claim on the principal’s behalf. The principal must then repay the resulting debt according to the surety’s credit terms. Not doing so can result in the surety taking legal action to recover the claim amount, plus court costs and legal fees.
How Much Do They Cost?
Idaho performance bonds are sold for an annual premium that’s the product of multiplying the bond amount (85% of the contract value) by the premium rate assigned to the principal through underwriting. The underwriters will examine the principal’s work record and financial statements to ensure that the principal has the ability and resources to handle the job.
Perhaps the greatest underwriting concern is the risk of the surety not being repaid for credit extended to the principal. The usual measure of this risk is the principal’s personal credit score, which is a good indication of the principal’s level of financial responsibility.
A person with a high credit score is assumed to pose little risk of not repaying the surety, so the premium rate will be low. On the other hand, a low credit score is a clear sign of higher risk and higher 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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