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 Rhode Island Construction Bonds?
The purpose of Rhode Island construction bonds is to provide protection against financial losses caused by contractors. They do this in two ways:
- by requiring contractors to comply with state and local construction laws and regulations, including building codes, and
- by providing funds to compensate injured parties for monetary damages resulting from contractor violations.
What Rhode Island Construction Bonds May Be Needed?
Some commonly required construction bonds in Rhode Island are:
Both public and private project owners may require these construction bonds, particularly for larger projects. Other Rhode Island construction bonds that project owners may require include:
- Contractor license bonds (local only)
- Maintenance bonds
- Subdivision improvement bonds
- Solar decommissioning bonds
- Right of Way bonds
How Do Rhode Island Construction Bonds Work?
Every Rhode Island construction bond is a legally binding three-way contract among:
- The obligee requiring the bond,
- The principal (the contractor) purchasing the bond, and
- The surety guaranteeing the bond.
The principal is legally obligated to pay claims the surety deems valid. But the surety guarantees that claims will be paid by establishing a line of credit for the purpose of paying claims if the principal can’t do so immediately from their own funds. The surety draws from that line of credit to pay the claimant directly. If the principal fails to repay the debt according to the terms of the surety bond agreement, the surety can take legal action to recover the funds.
How Much Do They Cost?
To determine the annual premium cost of a Rhode Island construction bond, the required bond amount (set by the obligee) is multiplied by the premium rate (assigned by the surety). The premium rate reflects an underwriting assessment of the risk of the surety not being repaid for claims paid on behalf of the surety. The best measure of that risk is the principal’s personal credit score.
A high personal credit score means low risk to the surety, which makes a low premium rate appropriate. A low credit score signals a higher risk level, resulting in 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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