Oregon Performance Bonds

Oregon Performance Bonds

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 Oregon Performance Bonds?

Oregon performance bonds serve an important purpose in the construction industry. They make it easier for contractors to win contracts because they assure project owners that they will be compensated for legitimate losses if a contractor defaults or fails to complete a job in accordance with contract specifications. Having work redone or bringing in another contractor to complete the job can be costly for the project owner.

Who Needs Them?

Oregon's “Little Miller Act,” requires performance bonds (and payment bonds) from contractors chosen for state-funded projects valued in excess of $100,000. Unlike the federal Miller Act, Oregon’s version also requires performance bonds for highway and transportation projects over $50,000. Every performance bond must be for an amount equal to the contract price. 

Although private construction projects do not come under the state’s Miller Act, many private project owners require performance bonds, especially for bigger projects.

How Do Oregon Performance Bonds Work?

There are three parties to an Oregon performance bond:

  • The state or local contracting authority or private project owner (the “obligee”)
  • The contractor (the ‘principal”)
  • The bond’s guarantor (the “surety”)

The principal alone is legally obligated to pay a valid claim from the obligee, and the surety guarantees that payment. That guarantee is in the form of an agreement to lend the principal the funds to pay a claim if that becomes necessary. 

The surety investigates, and if the claim is found to be valid, they will pay it initially. The principal must repay the resulting debt according to the surety’s credit terms. The surety won’t hesitate to take legal action against a principal who does not make full repayment.

How Much Do They Cost?

The annual premium for an Oregon performance bond is calculated by multiplying two factors—the bond amount (set by the obligee) and the premium rate (assigned by the surety). The premium rate reflects the underwriter’s assessment of the risk of the surety not being repaid for the credit extended in paying a claim on behalf of the principal. 

The principal’s personal credit score is deemed the best measure of the risk of non-repayment. A high credit score is reliable evidence of low risk to the surety. Low risk makes a low premium rate most appropriate. On the other hand, a low credit score is viewed as a red flag, signaling higher risk, which calls for 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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