Illinois Payment Bonds

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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 payment bond needs.  

What Are Illinois Payment Bonds?  

Payment bonds protect construction project owners from having their property encumbered by mechanic’s liens if the contractors they hire don’t pay subcontractors and suppliers. Payment bonds give unpaid subcontractors and suppliers another way to obtain the money they are owed without the use of mechanic’s liens.  

Who Needs Them?  

The Illinois Public Construction Bond Act is the formal name of the Illinois “Little Miller Act,” the state’s version of the federal Miller Act. It’s codified in the Illinois Compiled Statutes, in 30 ILCS 550 and mandates payment bonds to be furnished by contractors as a prerequisite for entering into a public works contract valued in excess of $50,000. Any payment bond must be in an amount equal to 100% of the contract value.  

Although private construction projects do not fall under Illinois’s Little Miller Act, private project owners also want the protection against mechanic’s liens that payment bonds provide. That’s why many of them choose to require payment bonds from the contractors they hire, especially for larger projects.  

How Do Illinois Payment Bonds Work?  

Three parties come together in a payment bond, which is legally binding on all of them. In the parlance of surety bonds, these are known as:  

  • the “obligee” (the project owner),  
  • the “principal” (the contractor), and  
  • the “surety” (the bond’s guarantor)  

The legal obligation to pay valid claims filed by unpaid subcontractors or suppliers belongs exclusively to the principal. As the guarantor, the surety has agreed to lend the principal the needed funds if that’s what it takes to pay a valid claim. The surety actually does that by paying a claim on the principal’s behalf as an extension of credit to the principal. The surety’s credit terms govern the amount and timing of repayment by the principal. Not repaying the debt accordingly is likely to cause the surety to take legal action to recover the debt.  

How Much Do They Cost?  

The premium for an Illinois payment bond is the result of multiplying the bond amount required by the premium rate. The obligee establishes the bond amount based on the construction project’s value, while the surety assigns a premium rate based on underwriting. The primary underwriting concern is the risk of the surety not being repaid for claims paid on the principal’s behalf, which is a type of credit risk. Underwriters measure credit risk by the principal’s personal credit score.  

Extending credit to a bond applicant with a high credit score poses little risk to the surety, so the premium rate will be low. Lending to someone with a low credit score entails significantly greater credit risk and warrants a higher premium rate to offset it.  

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.  

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