New Mexico Construction Bonds

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.