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What Are New Hampshire Payment Bonds?
New Hampshire payment bonds protect the owners of construction projects against financial liability and mechanic’s liens that can result when subcontractors and suppliers are not paid for the labor and supplies they have provided. Payment bonds give subcontractors and suppliers a way to obtain payment from contractors that owe them money without the encumbrance of the project owner’s property.
Who Needs Them?
New Hampshire’s Little Miller Act, the state’s version of the federal Miller Act, requires contractors undertaking public construction projects to furnish payment bonds. The threshold project value for a mandatory payment bond is $75,000 or more. For payment bonds required by a political division of the state (e.g., county or municipality), the threshold contract value is $150,000 or more. In both cases, the payment bond amount must be equal to at least 100% of the contract price. Details regarding payment bonds for public projects can be found in the New Hampshire Revised Statutes, Chapter 447, Sections 447:15 to 447:18.
The Little Miller Act does not apply to privately funded construction projects. But many private project owners seeking protection against mechanic’s liens choose to require payment bonds, particularly for high-value projects.
How Do New Hampshire Payment Bonds Work?
New Hampshire payment bonds are legally binding on three parties, each of which has specific rights and responsibilities under the surety bond agreement. These parties are referred to as:
- the “obligee” (the project owner requiring the bond),
- the “principal” (the contractor required to purchase the bond), and
- the “surety” (the bond’s guarantor).
These are the main steps in the payment bond process:
- The obligee determines the payment bond amount as a specific percentage of the contract value, and the surety assigns an appropriate premium rate.
- The surety determines whether a claim is legitimate and pays a valid claim on the principal’s behalf if necessary.
- The principal is legally obligated to pay all valid claims and must repay the resulting debt according to the surety’s credit terms.
- If not repaid, the surety initiates debt recovery actions against the principal.
How Much Do They Cost?
To calculate the premium for a New Hampshire payment bond, the surety multiplies the bond amount by the premium rate. The premium rate assigned by the surety reflects the risk of not being repaid for the credit extended in paying claims on the principal’s behalf). The accepted measure of this risk is the principal’s personal credit score.
A principal with a high credit score is viewed as low risk, which results in a low premium rate. Conversely, extending credit to someone with a low credit score carries greater risk, which warrants 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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