New Hampshire Performance Bonds
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What Are New Hampshire Performance Bonds?
New Hampshire performance bonds serve the important purpose of protecting construction project owners against the financial harm that can result from a contractor’s failure to complete a job according to contract specifications.
A performance bond helps ensure contractor compliance with regulatory and contractual requirements and provides a way to compensate the project owner to be compensated for monetary damages when violations do occur.
Who Needs Them?
New Hampshire's “Little Miller Act,” the state’s version of the federal Miller Act, mandates performance bonds (and payment bonds) from contractors chosen for public works projects valued in excess of $25,000. The bond amount must be equal to 100% of the contract value.
Private construction projects are not subject to New Hampshire’s Little Miller Act. But, many private project owners require performance bonds from their contractors, especially for high-value projects.
How Do New Hampshire Performance Bonds Work?
Every New Hampshire performance bond involves three parties:
- The public contracting agency or private project owner ( the bond’s “obligee”),
- The contractor (the “principal”), and
- The bond’s guarantor (the “surety”).
When a claim is received, the surety determines whether it is valid. If it is, the principal is legally obligated to pay it. However, the surety has guaranteed the payment of claims by agreeing to extend credit to the principal if necessary.
The standard practice is for the surety to pay the claim on the principal’s behalf. The principal must subsequently repay the resulting debt according to the surety’s credit terms. The surety will initiate legal debt recovery proceedings against a principal if not repaid.
How Much Do They Cost?
To calculate the premium for a New Hampshire performance bond, the surety multiplies the bond amount by the premium rate. The obligee establishes the required bond amount, and the surety assigns the premium rate based on an assessment of the risk of agreeing to extend credit to the principal.
The primary risk is that the principal might not repay the surety for a claim paid on the principal’s behalf. That risk is measured using the principal’s personal credit score.
A high credit score is reliable evidence of low risk to the surety, so a low premium rate is appropriate. Conversely, a low credit score is a sure sign of greater risk, which must be offset by 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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