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 bid bond needs.
What Are Mississippi Bid Bonds?
Mississippi bid bonds provide financial protection for construction project owners when selecting a contractor through competitive bidding. By purchasing a bid bond, a contractor (the bid bond’s “principal”) guarantees that:
- The bid price is accurate and realistic,
- The principal can and will furnish the necessary performance and payment bonds if awarded the job, and
- The principal will accept the job and enter into a contract with the project owner (the bond’s “obligee”) if chosen as the winning bidder.
A bid bond provides a way to compensate the obligee if the principal fails to live up to this guarantee.
Who Needs Them?
Mississippi does not have a statutory requirement for bid bonds at the state level. However, some municipal or county contracting authorities, as well as some private construction project owners, may require bid bonds for projects valued above a certain dollar amount. In most cases, the required amount of a bid bond is 5-10% of the bid price.
How Do Mississippi Bid Bonds Work?
A Mississippi bid bond is a legally binding agreement among the obligee, the principal, and a third party—the bond’s guarantor (called the “surety”). Although the legal obligation to pay a claim submitted by the obligee belongs to the principal alone. However, the surety guarantees the principal’s payment by agreeing to extend credit to the principal for the purpose of paying a claim.
It’s common practice for the surety to pay the claimant directly and be repaid by the principal for the resulting debt. The surety can sue a principal who fails to repay that debt in accordance with the surety’s credit terms.
How Much Do They Cost?
The premium for a Mississippi bid bond is the product of multiplying the bond amount by the premium rate assigned to the principal by the surety. The surety is primarily concerned about the risk of not being repaid for a claim paid on the principal’s behalf. That risk is measured based on the principal’s personal credit score.
A high credit score indicates that the risk to the surety is low, which makes a low premium rate appropriate. A low credit score, however, signals higher risk, so the premium rate will be higher.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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