Tennessee Construction Bonds
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 Tennessee Construction Bonds?
When contractors violate state or local laws, building codes, or the terms of a construction contract, the results can cause project owners significant financial harm. Tennessee construction bonds are designed to provide protection against such losses. Construction bonds require contractors to operate in compliance with regulatory and contractual obligations, but in the event of violations, they compensate the injured parties for monetary damages.
What Tennessee Construction Bonds May Be Needed?
Some commonly required construction bonds in Tennessee are:
- Bid bonds
- Performance bonds
- Payment bonds
Construction bonds may be required by state and/or local government agencies funding construction projects. They also may be required by private project owners, particularly for larger projects.
Other Tennessee 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 Tennessee Construction Bonds Work?
A Tennessee construction bond is a legally binding contract between three parties known as:
- The obligee – the project party requiring the bond,
- The principal – the contractor required to furnish the bond, and
- The surety – the bond’s guarantor.
The principal is legally obligated to pay any claims that the surety finds to be valid. But, having guaranteed that all valid claims will be paid, the surety will pay the claimant directly, drawing on a line of credit established for the principal when the bond was purchased. The surety will take legal action against the principal to recover the funds if not repaid according to the terms of the surety bond agreement.
How Much Do They Cost?
Tennessee construction bonds are sold for an annual premium that is a small percentage of the required bond amount (set by the obligee). That percentage is the premium rate, which the surety sets through underwriting. The primary underwriting concern is the risk of the surety not being repaid for claims paid on the principal’s behalf. The most reliable measure of that risk is the principal's personal credit score.
A high personal is taken to mean that the risk to the surety is low, which should result in a low premium rate will also be low. A low credit score means the risk level is higher, so the premium rate will be higher as well.
A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.
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