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 payment bond needs.
What Are Missouri Payment Bonds?
A Missouri payment bond protects a construction project owner (the “obligee” requiring the bond) against their property being encumbered by mechanic’s liens when a contractor (the bond’s “principal”) fails to pay subcontractors and/or suppliers. Payment bonds ensure that subcontractors and suppliers will receive payment for the labor or materials they have provided. The principal is legally obligated to pay all valid claims against a payment bond.
Who Needs Them?
Missouri’s “Little Miller Act,” the state’s version of the federal Miller Act, requires payment bonds for contracts exceeding $50,000. This law ensures payment for all materials, labor, insurance premiums, and certain related costs associated with public construction projects. The bond amount must be equal to 100% of the contract price.
Missouri’s payment bond requirements for public works projects are governed by the Missouri Revised Statutes, specifically Chapter 107, “Bonds of Public Officials and Public Employees,” and Chapter 34, “Public Contracts.”
Although privately funded construction projects aren’t governed by Missouri’s Little Miller Act, private project owners also want to avoid mechanic’s liens. They can, and often do, demand payment bonds from the contractors they hire.
How Do Missouri Payment Bonds Work?
Every Missouri payment bond involves a third party in addition to the obligee and the principal. This third party is the bond’s guarantor (the “surety”). While the principal alone bears the legal obligation to pay valid claims, the surety guarantees their payment. This guarantee is in the form of an agreement to lend the principal the funds needed to pay a claim if the surety’s investigation finds it to be valid. The standard practice is for the surety to pay the claim on the principal’s behalf, which is then repaid by the principal.
The principal will be subject to legal action to recover the funds if the debt is not repaid in accordance with the surety’s credit terms.
How Much Do They Cost?
The premium for a Missouri payment bond is calculated by multiplying the bond amount by the premium rate assigned by the surety. That premium rate must be high enough to offset the credit risk involved in paying claims on the principal’s behalf. This is the risk of a lender not being repaid by a borrower, which is measured by the principal’s personal credit score.
A high credit score means the credit risk is low, which results in a low premium rate. A lower credit score requires a higher premium rate to offset the higher risk level.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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