Virginia 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 Virginia Performance Bonds?

A Virginia performance bond protects public and private construction project owners against the financial losses experienced when a contractor fails to comply with legal and contractual requirements or defaults on a contract entirely. In furnishing a performance bond, the contractor (the bond’s “principal”) guarantees completely lawful and ethical execution of a particular construction job. The bond also provides a vehicle through which the project owner (the bond’s “obligee”) can claim compensation for losses resulting from the principal’s noncompliance.

Who Needs Them?

The official name of Virginia’s “Little Miller Act,” the state’s version of the federal Miller Act, is the Virginia Public Procurement Act. It mandates performance (and payment) bonds for state-funded construction projects with an estimated contract value in excess of $100,000. The performance bond amount must be equal to 100% of the contract value.

Private construction projects are not governed by the Little Miller Act. Nonetheless, many private project owners require performance bonds from their contractors, especially for higher-value jobs.

How Do Virginia Performance Bonds Work?

A Virginia performance bond is legally binding on three parties—the obligee, the principal, and the bond’s guarantor (known as the “surety”). While the bond is the principal’s guarantee to pay any valid claim, the surety guarantees the bond by agreeing to lend the principal the necessary funds.

The standard practice is for the surety to pay the claim initially as an extension of credit to the principal. But that doesn’t change the principal’s legal obligation to pay. It simply becomes an obligation to repay the debt to the surety according to the surety’s credit terms. The surety will take action to recover the funds through the courts if not repaid as agreed.

How Much Do They Cost?

The premium you’ll pay for a Virginia performance bond is the result of multiplying the bond amount by the premium rate. The bond amount is set by the obligee based on the contract value, while the premium rate is assigned by the surety. The main concern in determining an appropriate premium rate is the risk of the surety not being repaid for the credit extended in paying a claim on the principal’s behalf. The standard measure for such credit risk is the principal’s personal credit score.

A high credit score means the principal poses little credit risk to the surety, so the premium rate will be low. A low credit score indicates a much higher risk level, warranting 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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