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 Maine Performance Bonds?
Maine performance bonds protect construction project owners against financial losses caused by a contractor’s default or failure to complete a job according to contract specifications.
When a contractor (known as the bond’s “principal”) fails to perform as required, the contracting entity or project owner (the performance bond’s “obligee”) can file a claim against the bond for the resulting monetary damages.
Who Needs Them?
The official name of Maine’s “Little Miller Act,” the state’s version of the federal Miller Act, is the Public Works Contractors’ Surety Bond Law of 1971. It requires performance bonds (and payment bonds) from contractors chosen for state-funded public works projects valued in excess of $125,000. All performance bonds must be in an amount equal to the full contract value.
There is no legal requirement for contractors to furnish performance bonds in order to work on privately funded construction projects. But it’s becoming common for private project owners to require performance bonds from their contractors, especially for larger projects.
How Do Maine Performance Bonds Work?
Maine performance bonds are legally binding on the obligee, the principal, and a third party known as the “surety.” This is the bond’s guarantor.
Upon receipt of a claim, the surety first decides whether it is valid. While the principal is legally obligated to pay a valid claim, the surety has guaranteed its payment and will pay it on the principal’s behalf.
That payment is an extension of credit to the principal and must be repaid in accordance with the surety’s credit terms. Not repaying the surety can lead to legal debt recovery proceedings.
How Much Do They Cost?
Two numbers go into calculating the annual premium for a Maine performance bond—the bond amount and the premium rate. The obligee establishes the required bond amount, and the surety sets the premium rate based on an assessment of the potential risk to the surety. The primary risk is that the surety might not be repaid for the credit extended in paying a claim on behalf of the principal. The principal’s personal credit score is the standard measure of that risk.
A high credit score means the risk of non-repayment is minimal, which calls for a low premium rate. Conversely, a low credit score is a clear sign of greater risk, which warrants 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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