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 performance bond needs.
What Are New Mexico Performance Bonds?
New Mexico performance bonds protect construction project owners against financial loss when a contractor fails to complete a job in accordance with contract specifications or defaults on the contract. Remedying the situation, for example, by bringing in another contractor to complete the job, can be quite costly for the project owner.
Who Needs Them?
Under New Mexico’s “Little Miller Act,” performance bonds are required from contractors selected for public works and other state-funded projects valued in excess of $25,000. (They must furnish payment bonds as well.) The performance bond must be for an amount equal to the contract price.
The Little Miller Act does not apply to private construction projects. But it’s not uncommon for private project owners to require performance bonds, particularly for bigger contracts.
How Do New Mexico Performance Bonds Work?
There are three parties to a New Mexico performance bond:
- The contracting authority or private project owner (known as the “obligee”)
- The contractor furnishing the bond (the ‘principal”)
- The bond’s guarantor (the “surety”)
The principal alone is legally obligated to pay a valid claim from the obligee. The surety guarantees to extend credit to the principal for that purpose and is also responsible for investigating each claim to establish its validity.
If the obligee’s claim is found to be valid, the surety will pay it initially, creating a debt the principal owes to the surety. The principal must abide by the surety’s credit terms and repay the surety. Not repaying the debt can subject the principal to legal action by the surety to recover the funds.
How Much Do They Cost?
The annual premium for a New Mexico performance bond is the result of multiplying two numbers—the bond amount established by the obligee and the premium rate assigned to the principal by the surety. The premium rate is the result of an underwriting assessment of the risk that the surety might not be repaid for a claim paid on the principal’s behalf.
That risk is measured largely on the basis of the principal’s personal credit score. A high credit score means that there is little risk of the principal not repaying the surety, which calls for a low-interest rate. Conversely, a low credit score is taken as a sign of higher risk, which demands 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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