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 bid bond needs.
What Are New Mexico Bid Bonds?
When a New Mexico contractor is required to furnish a bid bond, the purpose is to guarantee the project owner that the contractor’s bid is accurate, the contractor has the capacity to provide performance and payment bonds if awarded the contract, and the contractor will accept the job if chosen as the winning bidder.
If the contractor (the bond’s “principal”) does not live up to those guarantees and causes the project owner to experience a financial loss, the project owner (the bond’s “obligee”) can file a claim for monetary damages. An added benefit for project owners is that bid bonds discourage frivolous bids.
Who Needs Them?
New Mexico state agencies conducting a competitive bidding process to select a contractor for a public works project may require a bid bond from each bidder. The same is true for municipal contracting authorities. Bid bonds are most commonly required for larger government-funded construction projects and increasingly for private construction projects as well.
How Do New Mexico Bid Bonds Work?
There are three parties to a New Mexico bid bond—the obligee and the principal, and a third party known as the “surety.” The surety is the bond’s guarantor.
The principal bears the full legal obligation to pay a valid claim, but the surety has guaranteed payment. Consequently, the surety pays the claimant directly, which means that the principal then owes that amount to the surety. Failing to repay the debt to the surety can result in the surety suing the principal to recover the funds.
How Much Do They Cost?
Multiplying the required bid bond amount (usually 5 to 10% of the total bid price) by the premium rate gives you the premium cost for a New Mexico bid bond. The surety assigns a premium rate to each principal through underwriting. The main underwriting concern is the risk of the surety not being repaid for claims paid on the principal’s behalf. The principal’s personal credit score is the best measure of that risk.
A high credit score is correlated with low risk to the surety, which means the premium rate will be low. A lower credit score is a red flag for 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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