Virginia 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 Virginia Payment Bonds?  

Virginia payment bonds protect construction project owners against their property being encumbered by mechanic’s liens when contractors fail to pay subcontractors and/or suppliers. A payment bond gives subcontractors and suppliers a way to obtain the funds owed to them without financial detriment to the project owner (the bond’s “obligee”).  

A payment bond legally obligates the contractor (the “principal”) to pay valid claims. But the real reassurance for the obligee is the fact that the payment of claims is guaranteed by a third party (the “surety”).  

Who Needs Them?  

Virginia’s Little Miller Act, the state’s version of the federal Miller Act of 1935, is codified in the Virginia Code, Title 2.2, Administration of Government, sections 2.2-4336 to 2.2-4341, and it establishes bonding requirements for contractors working on state-funded public works projects exceeding $500,000. This Act, similar to the federal Miller Act of 1935, mandates that contractors furnish payment bonds for the full contract value (100%). The obligee will inform you of any payment bond requirements you must meet before any work can be done on your project.  

Virginia’s Little Miller Act applies only to state-funded construction. However, private project owners still can require contractors to furnish payment bonds as protection against mechanic’s liens.  

How Do Virginia Payment Bonds Work?  

The basis for the surety’s guarantee that valid claims will be paid is an agreement to extend credit to the principal for that purpose. In fact, after determining that a claim is legitimate, the surety will pay it on the principal’s behalf, creating a debt owed by the principal to the surety. The principal must then repay that debt in accordance with the surety’s credit terms. Not doing so is likely to result in the surety taking legal action against the principal to recover the funds.  

How Much Do They Cost?  

Two factors go into calculating the premium cost for a Virginia payment bond: the dollar amount of the bond and the premium rate. The bond amount is established by statute or by a private project owner. The surety sets the premium rate for each bond applicant at a level that will offset the risk of not being repaid for the credit extended in paying a claim. The principal’s personal credit score is the standard measure of this risk.  

A high credit score is reliable evidence of a low risk of nonrepayment, which should result in a low premium rate. On the other hand, a low credit score signals a 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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