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 West Virginia Performance Bonds?
West Virginia performance bonds provide financial protection for construction project owners against the monetary damages incurred when a contractor fails to complete a job in accordance with legal and contractual requirements. By purchasing a performance bond, the contractor (the bond’s “principal”) guarantees the project owner (the bond’s “obligee”) that the job will be completed lawfully and ethically. A performance bond also provides a way for the obligee to claim compensation for losses resulting from the principal’s noncompliance.
Who Needs Them?
West Virginia’s “Little Miller Act” is the state’s version of the federal Miller Act that establishes bonding requirements for federally funded public works projects. West Virginia’s construction bonding requirements for state-funded public works projects are found in the West Virginia Code under “Performance and Payment Bonds on Public Improvements.” In short, all state-funded construction projects, regardless of size, require a performance bond in an amount that equals 100% of the project’s value.
Private construction projects aren’t covered by the Little Miller Act. However, many private project owners require contractors to provide performance bonds, especially for higher value jobs.
How Do West Virginia Performance Bonds Work?
There are three parties to a West Virginia performance bond—the obligee, the principal, and the bond’s guarantor, known as the “surety.” As the guarantor, the surety agrees to extend credit to the principal for the purpose of paying a valid claim, if necessary. In fact, the surety will pay the claimant directly on the principal’s behalf, creating a debt that the principal must then repay in accordance with the surety’s credit terms. The surety will initiate legal proceedings to recover the funds if not repaid by the principal.
How Much Do They Cost?
The premium for a West Virginia performance bond is a small percentage of the bond amount. That percentage is the premium rate, which is set by the surety to reflect the credit risk involved in guaranteeing the bond. Credit risk is the risk of not being repaid for claims paid on the principal’s behalf. The standard measure of credit risk is the principal’s personal credit score.
A high credit score means there is little credit risk, so a low premium rate is appropriate. Guaranteeing a performance bond for someone with a low credit score is much riskier, 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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