Construction Surety Bonds in Alabama

Builders and subcontractors in Alabama need construction bonds that support owner protection and contract performance. Surety Bonds Agent helps make the request straightforward with professional surety support. Request a fast, free quote today.

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What Is an Alabama Construction Bond?

There are a number of different types of construction bonds, but they all serve essentially the same purpose—protecting a public contracting authority or private project owner from financial loss in the event of a contractor’s legal or contractual violation.

What Types of Alabama Construction Bonds May Be Needed?

Alabama requires contractors to be licensed at the state level, which entails purchasing a contractor license bond.

The state’s Little Miller Act mandates both performance bonds and payment bonds for certain government-funded construction projects. In competitive bidding situations, the contracting authority may also require bid bonds. Private project owners may also require these bonds. While these are the most common Alabama construction surety bonds, both public and private project owners may require any of the following:

Maintenance bonds
Subdivision/site improvement bonds
Supply bonds
Solar decommissioning bonds
Right of Way bonds
Contractor license bond

How Does an Alabama Construction Bond Work?

Every Alabama construction bond brings together three parties, each with their own rights and obligations. They are known as the:

Obligee—the contracting authority or private project owner requiring the bond
Principal—the contractor who must furnish the bond
Surety—the bond’s guarantor

The obligee establishes the required bond amount. The principal is legally obligated to pay valid claims up to that amount.

However, the surety has guaranteed the payment of claims and, therefore will extend credit to the principal by paying the claimant directly. The principal must then repay the surety. Failure to do so can result in the principal being sued by the surety to recover the funds.

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How Much Does It Cost?

The annual premium for an Alabama construction bond is calculated using two factors: the required bond amount and the premium rate. The premium rate is the result of underwriting, which aims to determine the risk the surety will take on in agreeing to guarantee a construction bond.

The risk of the surety not being repaid for the credit extended in paying a claim on the principal’s behalf is considered low when the principal’s personal credit score is high. A low credit score is a sign of higher risk. Low risk deserves a low premium rate, while higher risk calls for a higher premium rate.

The premium rate for a principal with good credit usually is in the range of 1% to 3%.

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