Rhode Island Payment Bonds

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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 Rhode Island Payment Bonds?

The purpose of Rhode Island payment bonds is to protect construction project owners against the negative financial impact of a contractor’s failure to pay subcontractors or suppliers. More specifically, a payment bond protects the project owner (called the bond’s “obligee”) against having their property encumbered by mechanic’s liens, as it provides a guaranteed way for unpaid subcontractors and suppliers to obtain compensation. The bond legally obligates the contractor (the bond’s “principal”) to pay valid claims submitted by subcontractors and suppliers, and the bond’s guarantor (the “surety”) guarantees their payment.

Who Needs Them?

Rhode Island’s Little Miller Act is found in the Rhode Island General Laws, specifically within Title 37, Public Property and Works, Chapter 37-12, Performance Bonds. These statutes mandate payment bonds from contractors awarded public works projects above $100,000. These bonds must be for the full contract amount (100%). The obligee will inform you of any payment bond requirements you will need to meet. When a payment bond is required, it must be in place before any work can be done on the project.

The Little Miller Act does not apply to privately funded construction projects. However, many private project owners require contractors to furnish payment bonds to prevent mechanic’s liens.

How Do Rhode Island Payment Bonds Work?

A Rhode Island payment bond is legally binding on all three parties to it—the obligee, the principal, and the surety. As noted above, the principal is legally obligated to pay valid claims and the surety guarantees they will be paid. That guarantee actually is an agreement to extend credit to the principal for the purpose of paying a claim.

The surety will pay the claim directly, drawing on the credit line established for the principal when the bond was purchased. That payment thus results in a debt owed by the principal to the surety. It must be repaid by the principal in accordance with the surety’s credit terms. Not repaying the surety will cause the surety to initiate legal proceedings to recover the debt.

How Much Do They Cost?

Two factors go into calculating the premium amount due for a Rhode Island payment bond—the bond amount and the premium rate. The bond amount, determined by statute or by a private project owner, is tied to the contract price. The premium rate, set by the surety on a case-by-case basis and will be high enough to offset the risk of the surety not being repaid for the credit extended in paying a claims paid on the principal’s behalf. The principal’s personal credit score is the standard measure of that risk.

A high credit score is taken as evidence of a low risk to the surety, which makes a low premium rate appropriate. A low credit score, however, is a sure sign of higher risk and 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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