West 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 West Virginia Payment Bonds?

West Virginia payment bonds are surety bonds that protect construction project owners against mechanic’s liens if a contractor fails to pay subcontractors or suppliers. A payment bond protects the project owner (the “obligee”) by legally obligating the contractor (the “principal”) to pay valid claims submitted by unpaid subcontractors or suppliers. A third party (the “surety”) guarantees that valid claims will be paid, which eliminates the need for mechanic’s liens.

Who Needs Them?

West Virginia, like all other states, has its own version of the federal Miller Act of 1935, which requires both payment and performance bonds from contractors selected for federally-funded construction projects that meet certain threshold criteria. West Virginia’s “Little Miller Act” is set forth in the West Virginia Code under §38-2-39. It details the statutory requirement for payment bonds from contractors before they can start work on state-funded projects valued in excess of $25,000. The obligee will let you know what payment bond requirements may apply in your case.

Each payment bond must be in an amount equal to 100% of the contract price. This ensures that there are sufficient funds available to pay subcontractors and suppliers.

Private construction projects are not subject to the Little Miller Act. Nonetheless, it’s common for private project owners to require payment bonds from their contractors as protection against mechanic’s liens.

How Do West Virginia Payment Bonds Work?

The effectiveness of payment bonds as protection against mechanic’s liens rests on the surety’s guarantee that valid claims will be paid. And that guarantee takes the form of an agreement to extend credit to the principal for the purpose of paying claims. But that’s not a simple matter of writing a check to the principal. Instead, the surety will pay a valid claim on behalf of the principal, creating a debt that the principal must repay in accordance with the surety’s credit terms. The surety is likely to initiate legal debt recovery action against the surety if not repaid.

How Much Do They Cost?

The premium cost of a West Virginia payment bond is calculated by multiplying two numbers: the amount of the bond and the premium rate. The obligee establishes the bond amount based on the contract price. The surety sets the premium rate at a level that will offset the risk of not being repaid for the credit extended in paying a claim. The universally accepted measure of that risk is the principal’s personal credit score.

A high credit score is evidence of financial responsibility and low risk, making a low premium rate appropriate. On the other hand, a low credit score warrants a higher premium rate to offset the greater risk to the surety.

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

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