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 Mississippi Performance Bonds?
Mississippi performance bonds protect construction project owners against the financial harm caused by a contractor’s failure to complete a job according to contract specifications.
When a contractor (the bond’s “principal”) defaults on a construction contract or otherwise fails to perform in compliance with statutory and contractual requirements, the contracting entity or project owner (the bond’s “obligee”) can file a claim against the performance bond.
If the claim is found to be valid, the obligee will be compensated for monetary damages resulting from the principal’s noncompliance.
Who Needs Them?
Mississippi’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds (and payment bonds) from contractors to be awarded public works projects regardless of the contract value. The bond amount must be equal to 100% of the contract value. These requirements are found in the Mississippi Code, Title 31, Chapter 5.
Privately funded construction projects are not subject to Mississippi’s Little Miller Act. Nevertheless, private project owners also can require performance bonds and often do so, particularly for high-value projects.
How Do Mississippi Performance Bonds Work?
There is a third party to every Mississippi performance bond in addition to the obligee and the principal. This third party is the bond’s guarantor (known as the “surety”). The principal is legally obligated to pay any claim the surety finds to be valid, but the surety has guaranteed payment.
Because of this guarantee, the surety will pay a valid claim as an extension of credit to the principal. The resulting debt must be repaid by the principal in accordance with the surety’s credit terms. The surety can take the principal to court if that’s what it takes to recover the debt.
How Much Do They Cost?
The annual premium for a Mississippi performance bond is determined by multiplying two factors: the bond amount and the premium rate. The surety assigns a premium rate to each performance bond applicant through risk assessment.
The primary risk is that the surety might not be repaid for the credit extended to the principal in paying a claim. The principal’s personal credit score is widely accepted as the appropriate measure of the risk of non-repayment.
A principal with a high credit score presents little risk to the surety, resulting in a low premium rate. A low credit score is a sign of higher risk, 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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