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 Missouri Construction Bonds?
Missouri construction bonds are surety bonds that help ensure that contractors working in Missouri do so lawfully and ethically. The intent is to protect the state, project owners, and the public against the financial harm that can result from regulatory and contractual violations. When losses occur, the injured party can be compensated for monetary damages.
What Missouri Construction Bonds May Be Needed?
Some commonly required construction bonds in Missouri 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 Missouri construction bonds that contractors may be required to purchase include:
- Contractor license bonds (at the local level)
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Missouri Construction Bonds Work?
Every Missouri construction bond is a legally binding contract among three parties:
- The party requiring the bond is known as the “obligee,”
- The contractor purchasing the bond is referred to as the “principal,” and
- The party guaranteeing the payment of claims is called the “surety.”
The principal is legally obligated to pay all claims the surety finds valid, but the surety guarantees the payment of valid claims. Because of that guarantee, the surety will pay a claimant directly, essentially lending the money to the principal. If the principal does not repay that debt, the surety can take legal action to recover the funds, plus legal fees and court costs.
How Much Do They Cost?
Construction bonds are sold for an annual premium. That premium is determined by multiplying two factors: the required bond amount and the premium rate, which is set by the surety on a case-by-case basis through underwriting.
The underwriters assess the risk of the surety not being repaid for claims paid on the principal’s behalf. That risk is measured largely by the principal’s personal credit score. A high credit score indicates a low-risk level, which means the premium rate will be low. A low credit score is a reliable sign of higher risk, which demands 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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