New Mexico 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 New Mexico 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 New Mexico Construction Bond?

New Mexico construction bonds are a class of surety bonds designed to protect construction project owners against financial losses caused by their contractors. They accomplish this by:

  1. Requiring contractors to comply with both regulatory and contractual obligations, and
  2. Legally obligating them to compensate project owners (and sometimes the public) for financial harm caused by contractor noncompliance

What Types of New Mexico Construction Bonds May Be Needed?

In New Mexico, all general contractors and some specialty contractors are licensed at the state level, which requires the purchase of a contractor license bond. Some local jurisdictions also have contractor licensing and bonding requirements.

New Mexico’s “Little Miller Act” mandates the purchase of performance bonds and payment bonds by contractors as a prerequisite for signing a contract for a public works or other state-funded project valued above $25,000. Private construction projects don’t fall under the Little Miller Act. Still, many private project owners choose to require performance and payment bonds as financial protection for themselves and any investors. And when private project owners or government (state or local) contract authorities are selecting a contractor through competitive bidding, a bid bond may be required from every contractor vying for a construction job.

Other construction bonds that contractors operating in New Mexico may need include:

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

How Does a New Mexico Construction Bond Work?

Every New Mexico construction bond is a legally binding contract involving three parties known as:

  • The obligee—the project owner requiring the bond,
  • The principal—the contractor purchasing the bond, and
  • The surety—the party guaranteeing the payment of claims.

The surety determines whether a submitted claim is valid. It’s the principal’s legal obligation to pay all valid claims. The surety is fully indemnified. However, as the bond’s guarantor, the surety will lend the principal the amount needed to pay a valid claim. In fact, the surety will pay the claim on the principal’s behalf, creating a debt the principal must then repay in accordance with the surety’s credit terms. Not repaying the debt nearly always results in the surety initiating legal debt recovery action.

How Much Does It Cost?

How much a contractor will pay for a construction bond in New Mexico depends on the bond amount set by the obligee and the premium rate assigned by the surety through underwriting. The premium rate is a reflection of the risk of the surety not being repaid for credit extended to the principal in paying claims. So the underwriters rely heavily on the bond applicant’s personal credit score as a measure of risk.

A high credit score means the risk to the surety, so the premium rate will also be low. Conversely, a low credit score is reliable evidence of a higher risk level, which means the premium rate will be higher as well.

The premium rate for a contractor 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 New Mexico 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 New Mexico Construction Bond?

New Mexico construction bonds are a class of surety bonds designed to protect construction project owners against financial losses caused by their contractors. They accomplish this by:

  1. Requiring contractors to comply with both regulatory and contractual obligations, and
  2. Legally obligating them to compensate project owners (and sometimes the public) for financial harm caused by contractor noncompliance

 

In New Mexico, all general contractors and some specialty contractors are licensed at the state level, which requires the purchase of a contractor license bond. Some local jurisdictions also have contractor licensing and bonding requirements.

New Mexico’s “Little Miller Act” mandates the purchase of performance bonds and payment bonds by contractors as a prerequisite for signing a contract for a public works or other state-funded project valued above $25,000. Private construction projects don’t fall under the Little Miller Act. Still, many private project owners choose to require performance and payment bonds as financial protection for themselves and any investors. And when private project owners or government (state or local) contract authorities are selecting a contractor through competitive bidding, a bid bond may be required from every contractor vying for a construction job.

Other construction bonds that contractors operating in New Mexico may need include:

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

Every New Mexico construction bond is a legally binding contract involving three parties known as:

  • The obligee—the project owner requiring the bond,
  • The principal—the contractor purchasing the bond, and
  • The surety—the party guaranteeing the payment of claims.

The surety determines whether a submitted claim is valid. It’s the principal’s legal obligation to pay all valid claims. The surety is fully indemnified. However, as the bond’s guarantor, the surety will lend the principal the amount needed to pay a valid claim. In fact, the surety will pay the claim on the principal’s behalf, creating a debt the principal must then repay in accordance with the surety’s credit terms. Not repaying the debt nearly always results in the surety initiating legal debt recovery action.

How much a contractor will pay for a construction bond in New Mexico depends on the bond amount set by the obligee and the premium rate assigned by the surety through underwriting. The premium rate is a reflection of the risk of the surety not being repaid for credit extended to the principal in paying claims. So the underwriters rely heavily on the bond applicant’s personal credit score as a measure of risk.

A high credit score means the risk to the surety, so the premium rate will also be low. Conversely, a low credit score is reliable evidence of a higher risk level, which means the premium rate will be higher as well.

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

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Request a quote online or call today to speak with one of our surety bond experts about obtaining a New Mexico construction bond.