Kentucky 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?
Kentucky construction bonds are key to maintaining the integrity of the state’s construction industry. They protect the state and project owners in two ways:
- by requiring contractors to operate in a lawful and ethical manner and comply with state law and the terms of legally binding construction contracts, and
- by providing a way for project owners to recover financial losses resulting from contractor violations.
What Kentucky Construction Bonds May Be Needed?
Some commonly required construction bonds in Kentucky are:
State and/or local contractor licensing bodies can require the purchase of a bond. So can public or private project owners, particularly for larger projects.
Other Kentucky construction bonds that may be required include:
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Kentucky Construction Bonds Work?
Kentucky construction bonds are legally binding on three parties known as:
- the obligee—the party requiring the bond,
- the principal—the contractor required to purchase the bond, and
- the surety—the bond’s guarantor.
When the surety determines that a claim submitted by an injured party is valid, the principal is legally obligated to pay it. The surety has guaranteed the payment of claims and will pay a valid claim initially as an extension of credit to the principal, but the principal must then repay the surety or face legal collection proceedings.
What Do They Cost?
Calculating the annual premium cost of a Kentucky construction bond is a simple matter of multiplying the required bond amount (set by the obligee) and the premium rate (assigned by the surety through underwriting). The underwriters assess the risk of the surety not being repaid for claims paid on the principal’s behalf, based largely on the principal’s personal credit score.
A high personal credit score is a reliable indicator that the risk to the surety is low, which deserves a low premium rate. A low credit score strongly suggests a higher risk level, which leads to 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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