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 construction bond needs.
What Are Pennsylvania Construction Bonds?
A variety of construction bonds are available to protect against financial losses resulting from the unlawful, unethical, or negligent acts of contractors. First, construction bonds require contractors to operate in compliance with applicable laws, building codes, and the terms of the construction contract. Second, they provide a way for injured parties to be compensated for monetary damages in the event of a violation.
What Pennsylvania Construction Bonds May Be Needed?
The most commonly required construction bonds in Pennsylvania are:
Construction bonds may be required by public or private project owners, particularly for larger projects. Other Pennsylvania construction bonds that contractors may need to purchase include:
- Contractor license bonds (local only)
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Pennsylvania Construction Bonds Work?
Pennsylvania construction bonds are legally binding on the three parties involved: the obligee, the principal, and the surety.
- The obligee is the project owner requiring the bond,
- The principal is the contractor that must furnish the bond, and
- The surety is the party guaranteeing the bond.
While the principal is legally obligated to pay all claims the surety determines to be valid, the surety guarantees their payment. That guarantee is in the form of a line of credit that can be used to pay a claim if necessary.
The surety pays the claimant directly, drawing against that line of credit. The principal must then repay the surety within a certain amount of time or face legal debt recovery proceedings.
How Much Do They Cost?
The principal pays an annual premium to obtain a Pennsylvania construction bond. That premium is the result of multiplying the required bond amount established by the obligee and the premium rate assigned on a case-by-case basis by the surety through underwriting. In determining the appropriate premium rate, the underwriters rely heavily on the principal’s personal credit score as a measure of the risk to the surety—specifically, the risk of the surety not being repaid by the principal.
A high personal credit score is a reliable indication of a low risk to the surety, so the premium rate will also be low. A low credit score is a sign of a higher risk level, 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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