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 Washington Performance Bonds?
Washington performance bonds provide a way to compensate project owners whose contractor defaults or fails to perform according to contract specifications and legal requirements. Project owners can incur great costs by paying to have work redone or bringing in another contractor to complete the job.
Who Needs Them?
Washington’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds (and payment bonds) from contractors awarded state-funded projects valued in excess of $35,000, though there are some exemptions. And authorities have some discretion in setting the bond amount for contracts of $100,000 or less. But performance bonds for projects valued at $100,000 or more must be for the full contract price, except for highway projects over $2.5 million. Performance bonds for those may be for 50% of the total contract value.
Private construction projects aren’t subject to Washington’s Miller Act, but it’s increasingly common for private project owners to require performance bonds, especially for bigger projects.
How Do Washington Performance Bonds Work?
There are three parties to a Washington performance bond:
- The public contracting authority or private project owner (the “obligee”)
- The contractor (the ‘principal”)
- The bond’s guarantor (the “surety”)
The principal bears the full legal obligation to pay a valid claim from the obligee. And the surety guarantees that payment by agreeing to extend credit to the principal to pay a claim if that becomes necessary. The way that works is that the surety investigates the obligee’s claim and determines whether it is valid. If it is, the surety will pay it initially. The principal must then repay that debt to the surety or risk being sued by the surety to recover the funds.
How Much Do They Cost?
The surety calculates the annual premium for a Washington performance bond by multiplying the bond amount by the premium rate. The surety assigns each principal an appropriate premium rate reflecting an underwriting assessment of the risk of the principal not being repaid for the credit extended in paying a claim on the principal’s behalf.
The risk assessment relies heavily on the principal’s personal credit score. A high credit score is considered good evidence of a low-risk level, which means the premium rate will also be low. On the other hand, a low credit score signals higher risk, which warrants 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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