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 Montana Performance Bonds?
Montana performance bonds are designed to protect construction project owners against the negative financial impact of a contractor’s failure to complete a job according to contract specifications.
A project owner who has experienced a financial loss due to a contractor’s default or violation of statutory and contractual requirements can file a claim against the performance bond. If the claim proves to be valid, the claim for monetary damages will be paid.
Who Needs Them?
Montana’s “Little Miller Act,” the state’s version of the federal Miller Act, is officially known as the Montana Public Works Contractor’s Bond Act. It requires contractors to furnish performance bonds (and payment bonds) before they can be awarded public works projects. There is no minimum threshold contract value, but the contracting agency can waive the bond requirement for projects valued at less than $50,000. The bond amount is set by the contracting agency on a case-by-case basis.
Privately funded construction projects are not regulated under Montana’s Little Miller Act. But, many private project owners require performance bonds from their contractors, especially for high-value projects.
How Do Montana Performance Bonds Work?
Every Montana performance bond involves three parties:
- The public contracting agency or private 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 determines to be valid. But as the bond’s guarantor, the surety has agreed to extend credit to the principal for the purpose of paying a claim. Actually, the surety will pay the claim on the principal’s behalf, and the principal must then repay the resulting debt according to the surety’s credit terms. Not repaying it can result in the surety taking legal debt recovery action against the principal.
How Much Do They Cost?
The premium calculation for a Montana performance bond is simple:
Premium cost = bond amount X premium rate
The obligee sets the required bond amount, and the surety assigns the premium rate based on the risk the surety will take on in agreeing to extend credit to the principal.
The primary underwriting concern is the risk that the surety might not be repaid for paying a claim on the principal’s behalf. The surety measures that risk using the principal’s personal credit score.
A principal with a high credit score is considered financially responsible and a low risk to the surety, so the premium rate will be low. A low credit score indicates greater risk, which must be offset with 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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