Vermont 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 Vermont Payment Bonds?

The primary purpose of Vermont payment bonds is to protect construction project owners against the encumbrance of their property by mechanic’s liens when contractors don’t pay subcontractors and/or suppliers. A payment bond provides a way for unpaid subcontractors and suppliers to obtain the funds owed to them without financial harm to the project owner (the bond’s “obligee”).

A payment bond legally obligates the contractor (the “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 of 1935, which requires payment (and performance) bonds for federally-funded construction projects above a certain threshold value. Vermont’s Little Miller Act, found in the Vermont Code, Title 63G, Chapter 6a (Vermont Procurement Code), follows a similar structure. It requires contractors working on public works projects exceeding $100,000 to furnish a payment bond for the full contract amount (100%).

The obligee will inform you of any payment bond requirements that may apply to you. If you must furnish the obligee with a payment bond, no work can begin until there is an active bond in place.

Although Vermont’s Little Miller Act does not apply to privately funded construction, many private project owners still want protection against mechanic’s liens. Consequently, they often opt to require payment bonds from the contractors they hire.

How Do Vermont Payment Bonds Work?

The protection payment bonds give project owners derives from the surety’s guarantee that valid claims will be paid. That guarantee is in the form of an agreement to extend credit to the principal for that purpose. What actually happens is that the surety pays a claim on the principal’s behalf, to be repaid subsequently according to the surety’s credit terms. Not repaying the debt to the surety is likely to land the principal in court as the defendant in legal debt recovery proceedings.

How Much Do They Cost?

The premium cost of a Vermont payment bond is the result of multiplying the payment bond amount by the premium rate. Based on an underwriting risk assessment, the surety sets the premium rate for a given bond applicant high enough to offset the risk of not being repaid for the credit extended in paying a claim on behalf of the principal. The principal’s personal credit score is the universal measure of such risk.

A high credit score is correlated with a low risk to the surety, which deserves a low premium rate. However, a low premium raises the risk level and warrants a higher premium rate to offset it.

A well-qualified principal typically will be assigned a premium rate in the range of .5% to 3%.

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