Louisiana Performance Bonds

Louisiana Performance Bonds

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 Louisiana Performance Bonds?

The purpose of a Louisiana performance bond is to provide financial protection for a project owner (the bond’s “obligee”) against the losses that can occur when a contractor (the “principal”) violates the terms of a construction contract or defaults entirely. The bond obligates the principal to maintain acceptable performance standards and comply with all contract specifications. It also obligates the principal to compensate the obligee for monetary damages caused by a violation. 

Who Needs Them?

Louisiana's “Little Miller Act,” the state’s version of the federal Miller Act, requires contractors to furnish performance bonds (and payment bonds) before they can enter into a contract for a state-funded project valued in excess of $5,000. But that requirement can be waived for projects with a value below $50,000. The performance bond must be in an amount equal to 100% of the contract value. The bond amount may be reduced by half for smaller contracting businesses.

Privately-funded construction projects are not subject to the rules set forth in the Little Miller Act. However, private project owners may also require performance bonds and often do so, especially for high-value projects. 

How Do Louisiana Performance Bonds Work?

There is one more party to a Louisiana performance bond, in addition to the obligee and the principal—the bond’s guarantor (known as the “surety”). Although the legal obligation to pay a valid claim belongs exclusively to the principal, the surety guarantees that it will be paid. Contractors typically don’t have the liquidity to pay a claim right away, so the surety will pay the claim initially. The credit extended to the principal in this manner must be repaid according to the surety’s credit terms. The surety may take legal action against the principal if not repaid on schedule.

How Much Do They Cost?

Two factors determine the annual premium cost for a Louisiana performance bond—the bond amount and the premium rate. The obligee establishes the required bond amount, and the surety assigns the premium rate through underwriting. The primary underwriting goal is to assess the risk of the surety not being repaid for claims paid on the principal’s behalf, as measured by the principal’s personal credit score. The surety can then set a premium rate appropriate for the specific level of risk.

A high credit score is regarded as strong evidence of a low risk of the surety not being repaid. Low risk merits a low premium rate. Conversely, a low credit score is correlated with higher risk, which 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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