Nevada Construction Bonds

Nevada Construction Bonds

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 They?

Nevada construction bonds require contractors to operate in accordance with applicable state and/or local construction regulations and building codes. That’s one layer of protection for project owners and the public. Another layer of protection lies in the ability of a party that experiences a financial loss due to a bonded contractor’s unlawful or unethical behavior to seek compensation for monetary damages by filing a claim against the bond.

 

What Nevada Construction Bonds May Be Needed?

In Nevada, state and local government entities funding larger ($100,000+) public works projects require contractors to purchase performance bonds and payment bonds. It’s becoming more common for private project owners to require the same bonds to provide financial protection for themselves and for investors in their projects.  

Other construction bonds that may be required include 

Depending on the project type and location, contractors may also be required to furnish less common construction bonds, such as right of way bonds or solar decommissioning bonds

 

How Do They Work?

There are three parties to every Nevada construction bonds, and the surety bond agreement is legally binding on all three:

  • the project owner requiring the bond (the “obligee”), 
  • the contractor purchasing the bond (the “principal”), and  
  • the bond’s guarantor (the “surety”). 

Although the principal is legally obligated to pay valid claims, the surety has agreed to extend credit to the principal for the purpose of paying claims. So the surety normally will pay a claim initially, and give the principal a repayment schedule. The surety can sue a principal that fails to repay the debt to the surety. 

 

What Do They Cost?

Construction bonds are sold for an annual premium that is a small percentage of the required bond amount. That percentage, the premium rate, is established by the surety through underwriting. The underwriting goal is determining the premium rate appropriate for the risk level a given principal presents. The primary risk is the surety not being repaid for claims paid on behalf of the principal. 

The usual metric for risk is the principal’s personal credit score. The higher the credit score, the lower the risk to the surety, and the lower the premium rate. The reverse is true as well. A low credit score indicates higher risk and results in 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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