California Performance and Payment 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 California performance and payment 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 PERFORMANCE & PAYMENT BOND QUOTE

What Are California Performance & Payment Bonds?

There is a lot at stake for project owners, both public and private. Performance and payment bonds provide protection against the financial losses that can result when contractors fail to complete a construction job in accordance with the construction contract and/or don’t pay their subcontractors and suppliers. The bond protects project owners by:

  • Legally obligating the general contractor to abide by all applicable laws and regulations and the terms of the construction contract
  • Providing compensation when valid claims for damages are filed
  • Preventing mechanic’s liens on the property

A California performance and payment bond combines the protection afforded by both performance bonds and payment bonds in a single surety bond.

 

Who Needs One?

Every state has its own version of the federal Miller Act that requires performance and payment bonds for federally funded construction projects. In California, performance and payment bonds are required for any public works projects valued at $25,000 or more. The primary contractor on such a project must furnish a payment and performance bond in an amount equal to half the value of the contract. 

Increasingly, private project owners also are requiring their contractors to provide a performance and payment bond.

How Does a Performance & Payment Bond Work?

In the language of surety bonds, the three parties to a California performance and payment bond are known as the obligee, the principal, and the surety.

  • The project owner requiring the bond is the obligee,
  • The contractor purchasing the bond is the principal, and 
  • The bond’s guarantor is the surety.

In guaranteeing the bond, the surety guarantees to lend funds to the principal to pay a claim. The surety is indemnified against legal responsibility for the claim amount. The legal obligation to pay valid claims belongs entirely to the principal.

When a claim is received, the surety will determine whether it is valid. If it is, the surety will pay it on behalf of the principal as an extension of credit to the principal. This creates a debt the principal must pay back to the surety. Not repaying it means the surety can take legal action to recover the funds.

How Much Does It Cost?

The annual premium for a California Performance and payment bond is calculated by multiplying two values:

  • the required bond amount set by the obligee, and
  • the premium rate determined by the surety through underwriting.

Underwriting aims to assess the risk of the surety not being repaid for claims paid on behalf of the principal. The primary measure of that risk is the principal’s personal credit score.

A principal with a high credit score does not pose much risk to the surety and usually is assigned a low premium rate. Someone with lesser credit presents a greater risk of non-repayment and therefore pays a higher premium rate. 

The premium rate for a well-qualified principal 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 California performance and payment bonds.  If you have additional questions or want to explore bonding solutions for your business, speak with one of our knowledgeable surety bond experts.

 

CONTACT US FOR A

FREE PERFORMANCE & PAYMENT BOND QUOTE

What Are California Performance & Payment Bonds?

There is a lot at stake for project owners, both public and private. Performance and payment bonds provide protection against the financial losses that can result when contractors fail to complete a construction job in accordance with the construction contract and/or don’t pay their subcontractors and suppliers. The bond protects project owners by:

  • Legally obligating the general contractor to abide by all applicable laws and regulations and the terms of the construction contract
  • Providing compensation when valid claims for damages are filed
  • Preventing mechanic’s liens on the property

A California performance and payment bond combines the protection afforded by both performance bonds and payment bonds in a single surety bond.

 

Every state has its own version of the federal Miller Act that requires performance and payment bonds for federally funded construction projects. In California, performance and payment bonds are required for any public works projects valued at $25,000 or more. The primary contractor on such a project must furnish a payment and performance bond in an amount equal to half the value of the contract. 

Increasingly, private project owners also are requiring their contractors to provide a performance and payment bond.

In the language of surety bonds, the three parties to a California performance and payment bond are known as the obligee, the principal, and the surety.

  • The project owner requiring the bond is the obligee,
  • The contractor purchasing the bond is the principal, and 
  • The bond’s guarantor is the surety.

In guaranteeing the bond, the surety guarantees to lend funds to the principal to pay a claim. The surety is indemnified against legal responsibility for the claim amount. The legal obligation to pay valid claims belongs entirely to the principal.

When a claim is received, the surety will determine whether it is valid. If it is, the surety will pay it on behalf of the principal as an extension of credit to the principal. This creates a debt the principal must pay back to the surety. Not repaying it means the surety can take legal action to recover the funds.

The annual premium for a California Performance and payment bond is calculated by multiplying two values:

  • the required bond amount set by the obligee, and
  • the premium rate determined by the surety through underwriting.

Underwriting aims to assess the risk of the surety not being repaid for claims paid on behalf of the principal. The primary measure of that risk is the principal’s personal credit score.

A principal with a high credit score does not pose much risk to the surety and usually is assigned a low premium rate. Someone with lesser credit presents a greater risk of non-repayment and therefore pays a higher premium rate. 

The premium rate for a well-qualified principal 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 California performance and payment bond.