Maryland 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 Maryland Construction Bonds?
Maryland construction bonds protect the state, project owners, and the public against financial losses caused by the unlawful or unethical actions of contractors. This protection takes two forms. Preventively, a Maryland construction bond requires contractors to comply with applicable laws and regulations, as well as with the terms of the construction contract. But if violations occur, injured parties have the right to file a claim and be compensated for monetary damages.
What Maryland Construction Bonds May Be Needed?
Some commonly required construction bonds in Maryland are:
Construction bonds may be required by state and/or local contractor licensing bodies. They also may be required by public or private project owners, particularly for larger projects.
Other Maryland construction bonds that project owners may require include:
- Contractor license bonds
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Maryland Construction Bonds Work?
Every Maryland construction bond is a legally binding contract among three parties:
- The “obligee” requiring the bond,
- The “principal” purchasing the bond, and
- The “surety” guaranteeing the payment of claims.
The principal (the contractor) is legally obligated to pay valid claims. But because the surety has agreed to extend credit to the principal to ensure timely payment of claims, the surety will pay the claimant directly. The principal must then repay that debt to the surety or face legal collection proceedings.
How Much Do They Cost?
To calculate the annual premium rate for a Maryland construction bond, multiply the required bond amount by the premium rate. The premium rate reflects the underwriters’ assessment of the risk of the surety not being repaid for claims paid on the principal’s behalf. The primary measure used is the principal’s personal credit score.
A high credit score strongly suggests that the risk to the surety is low, which makes a low premium rate appropriate. A low credit score indicates a higher risk level, 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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