Vermont 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 Vermont Performance Bonds?

A Vermont performance bond protects public and private construction project owners against the financial losses experienced when a contractor fails to comply with legal and contractual requirements or defaults on a contract entirely. In furnishing a performance bond, the contractor (the bond’s “principal”) guarantees completely lawful and ethical execution of a particular construction job. The bond also provides a vehicle through which the project owner (the bond’s “obligee”) can claim compensation for losses resulting from the principal’s noncompliance.

Who Needs Them?

Vermont’s “Little Miller Act” differs from the federal Miller Act in that it requires performance (and payment) bonds for all state-funded construction projects, regardless of the contract’s estimated value. However, Vermont contracting agencies have the option to waive the performance bonding requirements for projects valued below $100,000. When a performance bond is required, the amount must be equal to 100% of the contract value.

Although private construction projects aren’t subject to the Little Miller Act, many private project owners require contractors to furnish performance bonds, especially for higher-value jobs.

How Do Vermont Performance Bonds Work?

In addition to the obligee and principal, there is a third party to a Vermont performance bond—the bond’s guarantor (known as the “surety”). The surety guarantees the payment of valid claims by agreeing to extend credit to the principal for the purpose of paying them. But the legal obligation to pay claims belongs entirely to the principal, as the surety is indemnified by the performance bond.

The surety will pay a valid claim initially, which creates a debt the principal must then repay in accordance with the surety’s credit terms. The surety will initiate the legal debt recovery process if not repaid.

How Much Do They Cost?

The premium you’ll pay for a Vermont performance bond is a small percentage of the required bond amount. While the bond amount is tied to the contract value, the premium rate reflects the credit risk—the risk of the surety not being repaid for a claim paid on the principal’s behalf. The underwriters measure such credit risk by the principal’s personal credit score.

A bond applicant with a high credit score presents little risk to the surety, so the premium rate will be low. Guaranteeing a performance bond for someone with a low credit score is a much riskier proposition, surety, which calls for a higher premium rate to offset the elevated risk.

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

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