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 Missouri Performance Bonds?
Missouri 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 defaults on a construction contract or otherwise fails to perform in compliance with statutory and contractual requirements, the contracting entity or project owner can file a claim against the performance bond. If the claim is found to be valid, the claimant will be compensated for monetary damages.
Who Needs Them?
Missouri’s “Little Miller Act,” the state’s version of the federal Miller Act, is codified in the Missouri Revised Statutes, Title VIII. It requires contractors to furnish performance bonds (and payment bonds) before they can be awarded public works projects valued in excess of $25,000. The bond amount is set by the obligee on a case-by-case basis.
Privately funded construction projects do not fall under Missouri’s Little Miller Act. Still, private project owners can and often do require performance bonds, especially for high-value projects.
How Do Missouri Performance Bonds Work?
Every Missouri performance bond involves three parties:
- The contracting entity or project owner (called the “obligee”),
- The contractor (the “principal”), and
- The bond’s guarantor (the “surety”).
The principal bears the full legal obligation to pay any claim the surety finds to be valid. But the surety has guaranteed payment and will, therefore, pay a valid claim on the principal’s behalf. This payment is made as an extension of credit to the principal. The principal must repay the resulting debt in accordance with the surety’s credit terms. Not repaying it can result in the principal being sued by the surety to recover the debt.
How Much Do They Cost?
The formula for calculating the premium for a Missouri performance bond is simple:
Premium cost = bond amount X premium rate
While the obligee establishes the required bond amount, the surety assigns the premium rate through an underwriting risk assessment. The main concern is the risk of the surety not being repaid for the credit extended to the principal in paying a claim. That risk is measured by the principal’s personal credit score.
A principal with a high credit score is a low risk to the surety, resulting in a low premium rate. A low credit score is evidence of higher risk, 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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