Pennsylvania 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 Pennsylvania 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 Pennsylvania Construction Bond?

Pennsylvania construction bonds combat the problem of construction project owners losing money because of a contractor’s unlawful or unethical actions. They do this in two ways:

  • by requiring the contractor who purchases the bond (known as the bond’s “principal”) to comply with all relevant statutes and regulations as well as contract specifications, and
  • by legally obligating the principal to pay valid claims for monetary damages filed by the project owner (the bond’s “obligee”) or other injured party.

What Types of Pennsylvania Construction Bonds May Be Needed?

In Pennsylvania, there is no licensing of contractors at the state level other than for crane operators. But some municipalities have their own licensing rules, and some of them require contractors applying for a local license or permit to provide a contractor license bond.

Pennsylvania’s “Little Miller Act,” officially called the Public Works Contractors’ Bond Law, is the state’s version of the federal Miller Act. It requires both performance bonds and payment bonds for state-funded projects valued in excess of $5,000. Each must be in an amount equal to 100% of the contract value. The only exception is public transportation projects, for which the threshold for the bond requirement is only $50,000. 

Private construction projects are not subject to Pennsylvania’s Little Miller Act. Nonetheless, many private project owners may choose to require their contractors to furnish both performance and payment bonds, especially for bigger projects. And any project owner, public or private, can require a bid bond from every bidder competing for a construction project.

Other construction bonds that contractors doing business in Pennsylvania may need to purchase include:

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

How Does a Pennsylvania Construction Bond Work?

The third party to a Pennsylvania construction bond agreement, in addition to the obligee and the principal, is the bond’s guarantor (known as the “surety”). 

Once the surety has ascertained a claim’s validity, the principal is legally obligated to pay it. But the surety has guaranteed the payment of valid claims and typically will pay a claim initially as an extension of credit to the principal. The principal will be given a schedule for repaying that debt and must abide by the surety’s credit terms. The surety will take legal action, if necessary, to recover the debt. 

How Much Does It Cost?

Bond amount times premium rate—that’s the formula for calculating the premium for a construction bond. The premium rate is set by the surety based on the risk of not being repaid for credit extended to the principal in paying a claim on the principal’s behalf. The principal’s personal credit score is the universally accepted measure of that risk. 

A high credit score is the hallmark of a financially responsible person, which means the risk to the surety is low. Low risk makes a low premium rate fair and appropriate. A low credit score is a sure sign of someone who has struggled with credit in the past, so the risk is higher, and the elevated risk calls for a higher premium rate to offset it.

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 Pennsylvania 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 Pennsylvania Construction Bond?

Pennsylvania construction bonds combat the problem of construction project owners losing money because of a contractor’s unlawful or unethical actions. They do this in two ways:

  • by requiring the contractor who purchases the bond (known as the bond’s “principal”) to comply with all relevant statutes and regulations as well as contract specifications, and
  • by legally obligating the principal to pay valid claims for monetary damages filed by the project owner (the bond’s “obligee”) or other injured party.

In Pennsylvania, there is no licensing of contractors at the state level other than for crane operators. But some municipalities have their own licensing rules, and some of them require contractors applying for a local license or permit to provide a contractor license bond.

Pennsylvania’s “Little Miller Act,” officially called the Public Works Contractors’ Bond Law, is the state’s version of the federal Miller Act. It requires both performance bonds and payment bonds for state-funded projects valued in excess of $5,000. Each must be in an amount equal to 100% of the contract value. The only exception is public transportation projects, for which the threshold for the bond requirement is only $50,000. 

Private construction projects are not subject to Pennsylvania’s Little Miller Act. Nonetheless, many private project owners may choose to require their contractors to furnish both performance and payment bonds, especially for bigger projects. And any project owner, public or private, can require a bid bond from every bidder competing for a construction project.

Other construction bonds that contractors doing business in Pennsylvania may need to purchase include:

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

The third party to a Pennsylvania construction bond agreement, in addition to the obligee and the principal, is the bond’s guarantor (known as the “surety”). 

Once the surety has ascertained a claim’s validity, the principal is legally obligated to pay it. But the surety has guaranteed the payment of valid claims and typically will pay a claim initially as an extension of credit to the principal. The principal will be given a schedule for repaying that debt and must abide by the surety’s credit terms. The surety will take legal action, if necessary, to recover the debt. 

Bond amount times premium rate—that’s the formula for calculating the premium for a construction bond. The premium rate is set by the surety based on the risk of not being repaid for credit extended to the principal in paying a claim on the principal’s behalf. The principal’s personal credit score is the universally accepted measure of that risk. 

A high credit score is the hallmark of a financially responsible person, which means the risk to the surety is low. Low risk makes a low premium rate fair and appropriate. A low credit score is a sure sign of someone who has struggled with credit in the past, so the risk is higher, and the elevated risk calls for a higher premium rate to offset it.

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

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