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 Oklahoma Payment Bonds?
Oklahoma payment bonds are designed to protect project owners from mechanic’s liens if a contractor fails to pay subcontractors or suppliers. They achieve this by providing a guaranteed way for unpaid subcontractors and suppliers to be compensated. The bond legally requires the contractor (the principal) to pay valid claims, with payment guaranteed by a third party (the surety).
Who Needs Them?
Oklahoma’s Little Miller Act, found in Title 61 of the Oklahoma Statutes (sections 61-1 through 61-3), applies to state-funded public works projects exceeding $50,000. Contractors working on such projects must furnish payment bonds for the full contract amount (100%) before starting work. The project owner will inform you of any specific payment bond requirements.
While Oklahoma’s Little Miller Act applies to public projects, many private project owners also request payment bonds to avoid mechanic’s liens.
How Do Oklahoma Payment Bonds Work?
There’s a third party involved in an Oklahoma payment bond besides the project owner and contractor – the surety (guarantor). The contractor is obligated to pay valid claims, but the surety guarantees those payments.
This guarantee acts as a loan from the surety to the contractor when a claim needs to be paid. The surety pays the claim on the contractor’s behalf, but the contractor then owes the surety the money according to their credit terms. If the contractor fails to repay the surety, they may face legal action to recover the funds.
How Much Do They Cost?
The cost of an Oklahoma payment bond is calculated by multiplying the bond amount by the premium rate. The bond amount is a percentage of the project value (set by statute or the project owner). The surety determines the premium rate based on the risk of not being repaid for credit extended if they have to pay a claim for the contractor. The main factor in assessing this risk is the contractor’s personal credit score.
A high credit score indicates a lower risk, resulting in a lower premium rate. Conversely, a low credit score suggests a higher risk, leading to a higher premium rate.
A well-qualified contractor can typically expect a premium rate between 0.5% and 3%.
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