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 Utah Payment Bonds?
Utah payment bonds are designed to protect construction project owners from financial loss if a contractor fails to pay subcontractors and/or suppliers. This protects the project owner (called the bond’s “obligee”) from mechanic’s liens on their property by providing a guaranteed way for unpaid subcontractors and suppliers to get compensated. The bond legally requires the contractor (the bond’s “principal”) to pay valid claims, with payment guaranteed by a third-party (the “surety”).
Who Needs Them?
Every state has its own version of the federal Miller Act, which mandates payment and performance bonds for federally-funded construction projects exceeding a certain amount. Utah’s Little Miller Act, found in the Utah Code (Title 63G, Chapter 6a – Utah Procurement Code), requires contractors working on public works projects over $50,000 to have a payment bond for the full project cost (100%).
The obligee will inform you of any payment bond requirements. If a bond is required, it must be active before construction begins.
While Utah’s Little Miller Act applies to public projects, many private project owners also request payment bonds to avoid mechanic’s liens.
How Do Utah Payment Bonds Work?
The core benefit of a Utah payment bond for project owners is the surety’s guarantee to pay valid claims. This guarantee acts as an extension of credit to the contractor to pay the claim. The surety actually pays the claim on the contractor’s behalf, but the contractor is then responsible for repaying the surety according to their credit terms. Failure to repay the surety may lead to legal action to recover the funds.
How Much Do They Cost?
The cost of a Utah payment bond is calculated by multiplying the bond amount by the premium rate. The surety determines the premium rate based on an underwriting risk assessment. This assessment considers the risk of not being repaid for the credit extended if the surety has to pay a claim on the principal’s behalf. The main factor in determining this risk is the contractor’s personal credit score.
A high credit score indicates a lower risk to the surety, resulting in a lower premium rate. Conversely, a low credit score suggests a higher risk, which leads to a higher premium rate to compensate.
Typically, a well-qualified principal can expect a premium rate between 0.5% and 3%.
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