Louisiana 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 Louisiana Payment Bonds?  

A Louisiana payment bond is intended to prevent the encumbrance of property by mechanic’s liens due to a contractor’s failure to pay subcontractors or suppliers. A payment bond not only protects a construction project owner (the bond’s “obligee”) against mechanic’s liens but also provides recourse for those who have not been paid for the labor and/or materials they have provided. The bond legally obligates the contractor (the bond’s “principal”) to pay the valid claims of unpaid subcontractors and suppliers.  

Who Needs Them?  

Louisiana’s “Little Miller Act” is the state’s version of the federal Miller Act and is codified in the Louisiana Revised Statutes Title 38, Chapter 10. The Little Miller Act requires the contractors selected for state-funded projects with an estimated value in excess of $5,000 to purchase a payment bond prior to entering into a contract with the state or one of its political subdivisions. The bond amount must be equal to 100% of the contract value.  

Private construction projects don’t fall under the Little Miller Act. But private project owners seeking protection against mechanic’s liens may choose to require payment bonds from the contractors they hire.  

How Do Louisiana Payment Bonds Work?  

A Louisiana payment bond is legally binding on a third party in addition to the obligee and the principal. This is the bond’s guarantor, known as the “surety.” The surety’s role is to guarantee the payment of claims. But the legal obligation to pay valid claims belongs to the principal alone. The surety’s guarantee takes the form of an agreement to extend credit to the principal for the purpose of paying claims the surety determines to be valid.  

Here’s how that works. The surety will pay a valid claim on the principal’s behalf, creating a debt the principal must then repay in accordance with the surety’s credit terms, which typically allow repayment over a certain period of time. Not repaying the debt can result in the surety taking legal action against the principal to recover the funds.  

How Much Do They Cost?  

The premium for a Louisiana payment bond depends on the bond amount and the premium rate.  

The premium rate is assigned by the surety based on an assessment of the risk of extending credit to the principal. The main underwriting concern is the chance that the surety won’t be repaid for claims paid on the principal’s behalf. The principal’s personal credit score is the accepted measure of this risk.  

A principal with a high credit score is assumed to be a low risk to the surety, which merits a low premium rate. But extending credit to someone with lesser credit is much riskier, so the premium rate will be higher to offset the elevated risk.  

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

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