Rhode Island Performance 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 performance bond needs.

What Are Rhode Island Performance Bonds?

Construction project owners can experience substantial financial losses when a contractor defaults on a contract or otherwise fails to complete a job in full compliance with legal and contractual requirements. By purchasing a performance bond, a contractor guarantees compliance and accepts the legal obligation to pay monetary damages to the project owner for losses resulting from the contractor’s violation(s).

Who Needs Them?

Rhode Island’s “Little Miller Act,” the state’s version of the federal Miller Act, requires contractors to furnish performance bonds (and payment bonds) before entering into a state contract valued in excess of $50,000. The required amount of a Rhode Island performance bond must be in an amount between 50% and 100% of the full contract value, at the contracting authority’s discretion.

Rhode Island’s Little Miller Act does not apply to privately-funded construction projects. Nevertheless, many private project owners do require performance bonds, especially for larger construction projects.

How Do Rhode Island Performance Bonds Work?

In the lingo of surety bonds, the three parties to a Rhode Island performance bond are known as the:

  • Obligee—the public contracting authority or private project owner requiring the bond
  • Principal—the contractor purchasing the bond
  • Surety—the company guaranteeing the bond

The obligee can file a claim for any monetary damages caused by the principal’s default or other failure to meet legal or contractual obligations. The surety will conduct an investigation of every claim to make sure it’s legitimate. The principal is legally obligated to pay any claim the surety deems valid.

However, as the bond’s guarantor, the surety has agreed to lend the necessary funds to the principal. In fact, the surety will pay the claim on the principal’s behalf as an extension of credit to the principal. The principal must subsequently repay that debt in full, in accordance with the surety’s credit terms. If not repaid, the surety can take legal action against the principal to recover the funds.

How Much Do They Cost?

To determine the premium cost of a Rhode Island performance bond, the surety multiplies the required bond amount by the premium rate. The bond amount is set by the obligee based on the contract value, and the surety assigns the premium rate through underwriting. The main underwriting concern is the risk of not being repaid for a claim paid on the principal’s behalf, which is assessed on the basis of the applicant’s personal credit score. The surety then assigns the principal a premium rate that is commensurate with the risk level.

The higher the principal’s credit score, the lower the credit risk, and the lower the premium rate will be. A low credit score, on the other hand, signals higher risk, which must be offset by 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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