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 Maine Payment Bonds?
Maine payment bonds serve the important purpose of preventing the encumbrance of property by mechanic’s liens when a contractor fails to pay subcontractors or suppliers. A payment bond protects a construction project owner (the bond’s “obligee”) against mechanic’s liens by providing a way for subcontractors and suppliers to get 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?
Maine’s “Little Miller Act” is the state’s version of the federal Miller Act. You’ll find it in the Maine Revised Statutes Title 10, Chapter 1101. It establishes the requirement for contractors to purchase a payment bond before they can enter into a contract for more than $125,000 with the state or one of its political subdivisions. The bond must be in an amount equal to the full amount of the contract.
Private construction projects aren’t subject to the bonding requirements of Maine’s Little Miller Act. But private project owners seeking to avoid the possibility of mechanic’s liens may choose to demand payment bonds from the contractors they hire.
How Do Maine Payment Bonds Work?
There is a third party to a Maine payment bond—the bond’s guarantor, known as the “surety.” The principal is legally obligated to pay valid claims, but the surety guarantees their payment by agreeing to extend credit to the principal for that purpose.
To ensure a swift resolution, the surety will pay a claimant directly on the principal’s behalf. This transforms the principal’s legal obligation to pay the claim into a legal obligation to repay the surety. The surety’s credit terms often will allow repayment in installments over a certain length of time. Not repaying the surety can result in legal action against the principal to recover the funds.
How Much Do They Cost?
The premium for a Maine payment bond is calculated by multiplying two factors: the bond amount and the premium rate. While the obligee sets the bond amount based on the contract value, the surety assigns the premium rate based on an assessment of the credit risk. This is the risk of a borrower not repaying the lender. The underwriters measure credit risk based on the principal’s personal credit score.
A high credit score is reliable evidence of a low risk to the surety, so the premium rate will also be low. But with a lower credit score the credit risk is much greater, 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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