New Jersey Payment Bonds

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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 payment bond needs.  

What Are New Jersey Payment Bonds? 

New Jersey payment bonds protect construction project owners against having their property encumbered by mechanic’s liens if their contractor does not pay subcontractors or suppliers according to contractual requirements. A subcontractor or supplier that has not been paid has the right to file a claim against the payment bond furnished by the contractor (known as the bond’s “principal”) to the project owner (the “obligee”). If the claim is found to be valid, the principal is legally obligated to pay it within a given period of time following project completion. 

Who Needs Them?  

New Jersey’s “Little Miller Act,” the state’s version of the federal Miller Act, is found in the New Jersey Statutes, Title 2A, Chapter 44A, section 2A:44A-26. The Little Miller Act, formally referred to as the New Jersey Public Works Contractor Registration Act, mandates payment bonds for state-funded construction projects valued in excess of $200,000. The bond amount must be equal to the contract value.  

Private construction projects aren’t subject to the statutory requirement for payment bonds. Nevertheless, many private project owners choose to protect their investment against mechanic’s liens by requiring payment bonds from the contractors they hire.  

How Do New Jersey Payment Bonds Work? 

There is a third party to a New Jersey payment bond in addition to the obligee and the principal. This is the bond’s guarantor (known as the “surety”). The surety’s guarantee takes the form of an agreement to extend credit to the principal for the purpose of paying a claim if necessary.  

After determining that a claim is valid, the surety will pay it on the principal’s behalf. The principal must, by law, repay the resulting debt according to the surety’s credit terms. Remember, the legal obligation to pay valid claims belongs to the principal, not the surety. The surety is indemnified by the payment bond and can take the principal to court to recover the debt if not repaid.  

How Much Do They Cost? 

The premium cost of a New Jersey payment bond depends on two factors: the bond amount and the premium rate. While the obligee establishes the bond amount, the surety sets the premium rate on a case-by-case basis. This is done through an underwriting assessment of the risk of the surety not being repaid for the credit extended to the principal in paying a claim. This credit risk is measured by the principal’s personal credit score.  

A high credit score means the credit risk the surety will be accepting is low, resulting in a low premium rate. However, a low credit score indicates a higher credit 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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