Pennsylvania 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 Pennsylvania Performance Bonds?

Construction project owners count on the contractors they hire to complete their work on time and in full legal and contractual compliance. Failing to do so can be very costly for the project owner. A performance bond is a contractor’s guarantee of compliance. It also guarantees that funds will be available to compensate the project owner for monetary damages resulting from contractor violations.

Who Needs Them?

The official name of Pennsylvania’s “Little Miller Act,” the state’s version of the federal Miller Act, is the Public Works Contractors’ Bond Law of 1967. It requires contractors to furnish performance bonds (and payment bonds) if chosen for a state contract valued in excess of $5,000. All performance bonds must be in an amount equal to the full contract value.

Privately funded construction projects are not subject to Pennsylvania’s Little Miller Act. But many private project owners choose to require performance bonds from their contractors, especially for larger construction projects.

How Do Pennsylvania Performance Bonds Work?

The three parties to a Pennsylvania performance bond are the:

  • public contracting authority or private project owner (the “obligee”),
  • contractor (the “principal”), and
  • the bond’s guarantor (the “surety”).

When the principal fails to complete the job or does not meet legal or contractual obligations, the obligee can file a claim for any resulting monetary damages. The surety investigates every claim to make sure it’s valid. If it is, the principal is legally obligated to pay it.

However, the normal practice is for the surety to pay the claim on the principal’s behalf, but only as an extension of credit to the principal. The principal must then repay that debt according to the surety’s credit terms. The surety can initiate legal action against the principal if not repaid.

How Much Do They Cost?

The premium cost of a Pennsylvania performance bond is the result of multiplying the bond amount by the premium rate. The bond amount depends on the contract value, and the surety sets the premium rate through an assessment of the credit risk to the surety. Credit risk is measured by the applicant’s personal credit score.

A high credit score is strong evidence of low credit risk, so a low premium rate is appropriate. A low credit score, on the other hand, is a red flag for 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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