Kentucky Construction Bonds

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Kentucky construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

What Is a Kentucky Construction Bond?

Kentucky construction bonds are surety bonds designed to protect construction project owners against financial harm caused by a contractor’s regulatory or contractual violations. That protection derives from a construction bond’s requirements that the contractor 1) comply with specific statutory and contractual obligations and 2) compensate the injured party for monetary damages resulting from noncompliance.

What Types of Kentucky Construction Bonds May Be Needed?

In Kentucky, only plumbing, electrical, and HVAC contractors must be licensed at the state level and furnish the licensing authority with a contractor license bond. However, all contractors may be subject to local licensing and bonding requirements. 

Kentucky’s “Little Miller Act” requires performance bonds and payment bonds for state-funded construction projects above a certain threshold value. Some local contracting authorities and many owners of larger private construction projects also require performance and payment bonds. And bid bonds may be required by public and private project owners alike when contracts are awarded through competitive bidding.

In addition to these, both public and private project owners may require other construction bonds, such as:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

How Does a Kentucky Construction Bond Work?

The three parties to every Kentucky construction bond are known as the:

  • Obligee—the government contracting authority or private project owner requiring the bond
  • Principal—the contractor providing the bond 
  • Surety—the party guaranteeing the bond

The principal is legally obligated to pay valid claims against a Kentucky construction bond. But the surety guarantees their payment by agreeing to extend credit to the principal if it is needed in order to compensate a claimant. The surety will draw upon that credit to pay the claimant on behalf of the principal, who must then repay that debt in accordance with the surety’s credit terms. Not repaying the surety can trigger a lawsuit by the surety to recover the funds.

How Much Does It Cost?

The annual premium for a Kentucky construction bond depends on two factors: the required bond amount and the premium rate. The obligee establishes the bond amount, and the surety sets the premium rate based on an assessment of the risk entailed. The primary risk is that the surety may not be repaid for claims paid on behalf of the principal. That risk is measured by the principal’s personal credit score. 

A high credit score is a reliable indication of low risk, which means the principal deserves a low premium rate. Conversely, a low credit score is a red flag for higher risk, which calls for a higher premium rate. 

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

At Surety Bonds Agent, we offer a full range of surety bonds nationwide through an extended carrier network. Continue below to learn more about Kentucky construction bonds. If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

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FREE CONSTRUCTION BOND QUOTE

What Is a Kentucky Construction Bond?

Kentucky construction bonds are surety bonds designed to protect construction project owners against financial harm caused by a contractor’s regulatory or contractual violations. That protection derives from a construction bond’s requirements that the contractor 1) comply with specific statutory and contractual obligations and 2) compensate the injured party for monetary damages resulting from noncompliance.

 

In Kentucky, only plumbing, electrical, and HVAC contractors must be licensed at the state level and furnish the licensing authority with a contractor license bond. However, all contractors may be subject to local licensing and bonding requirements. 

Kentucky’s “Little Miller Act” requires performance bonds and payment bonds for state-funded construction projects above a certain threshold value. Some local contracting authorities and many owners of larger private construction projects also require performance and payment bonds. And bid bonds may be required by public and private project owners alike when contracts are awarded through competitive bidding.

In addition to these, both public and private project owners may require other construction bonds, such as:

  • Maintenance bonds
  • Subdivision/site improvement bonds
  • Supply bonds
  • Solar decommissioning bonds
  • Right of Way bonds

The three parties to every Kentucky construction bond are known as the:

  • Obligee—the government contracting authority or private project owner requiring the bond
  • Principal—the contractor providing the bond 
  • Surety—the party guaranteeing the bond

The principal is legally obligated to pay valid claims against a Kentucky construction bond. But the surety guarantees their payment by agreeing to extend credit to the principal if it is needed in order to compensate a claimant. The surety will draw upon that credit to pay the claimant on behalf of the principal, who must then repay that debt in accordance with the surety’s credit terms. Not repaying the surety can trigger a lawsuit by the surety to recover the funds.

The annual premium for a Kentucky construction bond depends on two factors: the required bond amount and the premium rate. The obligee establishes the bond amount, and the surety sets the premium rate based on an assessment of the risk entailed. The primary risk is that the surety may not be repaid for claims paid on behalf of the principal. That risk is measured by the principal’s personal credit score. 

A high credit score is a reliable indication of low risk, which means the principal deserves a low premium rate. Conversely, a low credit score is a red flag for higher risk, which 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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