Michigan’s “Little Miller Act,” the state’s version of the federal Miller Act, requires performance and payment bonds for contracts valued at more than $50,000. The required bond amount generally is 25% of the contract value for each type of bond, but the project owner (the bond’s “obligee”) can, at their discretion, set a higher bond amount. It’s becoming increasingly common for private project owners, like government project owners, to require performance and payment bonds from their contractors.
Michigan Performance and Payment Bonds
Construction firms in Michigan need performance and payment bonds for contracts that require completion and payment protection. Surety Bonds Agent provides nationwide quote help with high expertise. Request your bond quote now.
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What Are Michigan Performance & Payment Bonds?
Sometimes contractors bite off more than they can chew and are unable to meet all of their contractual obligations. A contractor’s failure to complete a project satisfactorily or to pay subcontractors and suppliers can cause the project owner great financial harm and can result in mechanic’s liens on the property. A performance bond and a payment bond can be combined in a single performance and payment surety bond, providing protection against both eventualities.
A Michigan performance and payment bond requires the contractor (known as the bond’s “principal”) to operate in accordance with all applicable laws and regulations and comply with the terms of the construction contract. It also provides a way for the project owner to recoup financial losses caused by the contractor’s unlawful or unethical actions and legally obligates the contractor to pay all valid claims.
Who Needs One?
How Do Performance & Payment Bonds Work?
A Michigan performance and payment bond is a legally binding contract among the obligee, the principal, and a third party—the bond’s guarantor (referred to as the “surety”).
The surety guarantees the payment of claims by agreeing to lend the principal the funds to pay a valid claim, if necessary. But the legal obligation to pay valid claims belongs exclusively to the principal. Typically, the surety will pay a valid claim initially and then be repaid by the principal. The surety can sue to recover the debt if the principal doesn’t repay it according to the surety’s terms.
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How Much Does It Cost?
The annual premium for a Michigan performance and payment bond is the result of multiplying the required bond amount established by the obligee by the premium rate assigned by the surety through underwriting. The underwriters assess the risk of the surety not being repaid for claims paid on the principal’s behalf, using the principal’s personal credit score as the primary measure of risk.
A high credit score indicates a low risk to the surety and results in a low premium rate. Conversely, a low credit score is a red flag for risk and warrants 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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How Do Michigan Performance and Payment Bonds Work?
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