New Mexico Construction Bonds

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Surety Bond Professionals is a family owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all of your construction bond needs.

What Are They?

New Mexico construction bonds serve an important purpose in maintaining a fair and reliable construction industry in the state. They protect public and private project owners in two key ways by:

  • Requiring contractors to abide by all applicable laws and regulations governing construction, and
  • Providing a way for those financially harmed by a contractor’s unlawful or unethical business conduct to be compensated for monetary damages.

What New Mexico Construction Bonds May Be Needed?

Under New Mexico’s “Little Miller Act,” contractors working on state-funded public works projects values above $25,000 must furnish the project owner with a performance bond and a payment bond. Many private project owners also require performance and payment bonds for their own financial protection.

Other commonly required construction bonds include 

  • Contractor license bonds, 
  • Bid bonds, 
  • Maintenance bonds, 
  • Subdivision improvement bonds.  

Depending on the location and the type of construction project, contractors may be required to purchase additional bonds, such as a right of way bond or solar decommissioning bonds.

How Do They Work?

Every New Mexico construction bond involves three parties referred to as:

  • the “obligee” – the project owner requiring the bond,
  • the “principal” – the contractor purchasing the bond, and  
  • the “surety” – the bond’s guarantor. 

The bond is legally binding on all parties.

The legal obligation to pay valid claims belongs exclusively to the principal, but the surety guarantees that they will be paid. Therefore, the principal will pay a valid claim initially as an extension of credit to the principal. The principal must then repay the surety by a certain date. Failing to do so can result in the surety taking legal action against the principal to recover the debt.

What Do They Cost?

The annual premium for a construction bond is a small percentage of the required bond amount. That percentage is the premium rate, which the surety assigns on a case-by-case basis through an assessment of the risk of the surety not being repaid for claims paid on behalf of the principal. 

The risk of non-repayment is measured based on the principal’s personal credit score. A high credit score is evidence of a low-risk level, while a low credit score indicates a higher risk. Low risk earns the principal a low premium rate, but high risk warrants a higher rate. 

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

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