Hawaii 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 Hawaii Performance Bonds?

Hawaii performance bonds protect construction project owners against the substantial costs they can incur when a contractor defaults or otherwise fails to complete a job in accordance with contract specifications. They hold contractors to certain standards and provide a way for project owners to seek compensation for monetary damages.

Who Needs Them?

Hawaii’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance bonds from contractors before they can be awarded state-funded public projects. (Hawaii’s Little Miller Act also mandates payment bonds.)

Performance bonds are not a statutory requirement for private construction projects, regardless of the contract value. However, many private project owners require their contractors to provide performance bonds, particularly for high-value contracts.

How Do Hawaii Performance Bonds Work?

Hawaii performance bonds are legally binding on the three parties involved, who are known in the lingo of surety bonds as:

  • The “obligee” (the project owner requiring the bond)
  • The “principal” (the contractor furnishing the bond)
  • The “surety” (the bond’s guarantor)

An obligee who incurs a loss (for example, by paying to have work redone or bringing in another contractor to finish the job) can file a claim and be compensated if the surety finds the claim to be valid. The legal obligation to pay a valid claim rests entirely with the principal. But as the bond’s guarantor, the surety will pay the claim initially as an extension of credit to the principal.

The principal must repay the resulting debt to the surety, as the surety is indemnified against any legal responsibility for the claim. If the debt is not repaid in accordance with the surety’s credit terms, the principal is likely to end up losing in court and having to pay court costs and legal fees in addition to the debt owed to the surety.

How Much Do They Cost?

The annual premium for Hawaii construction bonds is easily calculated by multiplying the bond amount by the premium rate. While the bond amount is determined by the obligee, the premium rate is assigned to each principal through an underwriting assessment of the risk to the surety.

Since the biggest risk is the surety not being repaid for claims paid on the principal’s behalf, the risk assessment relies almost entirely upon the principal’s personal credit score. The higher the credit score, the lower the risk and the lower the premium rate. The opposite is true as well. A low credit score means higher risk and calls for 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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