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 Montana Construction Bonds?
Montana construction bonds are surety bonds that may be required by the state or by public or private project owners for protection against financial harm resulting from a contractor’s unlawful or unethical actions. Each construction bond requires the contractor to operate in compliance with the law and the terms of the construction contract. When violations do occur, the injured party can file a claim against the bond and be compensated for monetary damages.
What Montana Construction Bonds May Be Needed?
Some commonly required construction bonds in Montana are:
- Bid bonds
- Performance bonds
- Payment bonds
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 Montana construction bonds that project owners may require include:
- Contractor license bonds (local only)
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Montana Construction Bonds Work?
There are three parties to every Montana construction bond. They are referred to as the obligee (the party requiring the bond), the principal (the contractor), and the surety (the bond’s guarantor).
The principal is legally obligated to pay valid claims, and the surety guarantees their payment by agreeing to extend credit to the principal if necessary. The surety will pay the claimant directly, creating a debt that the principal must then repay to the surety. Failing to repay the debt can result in the surety taking legal action against the principal to recover the funds.
How Much Do They Cost?
The annual premium cost for a construction bond is the result of multiplying the bond amount required by the obligee and the premium rate, which is assigned by the surety through underwriting. The goal of underwriting is to assess the risk of the surety not being reimbursed for claims paid on the principal’s behalf.
A principal with a high personal credit score is viewed as a low risk to the surety, which results in a low premium rate. Conversely, a low credit score indicates a higher risk level, 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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