Texas 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 Texas 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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What Are Texas Performance and Payment Bonds?

While Texas performance bonds and payment bonds can be purchased separately, the protection provided by each can be combined in a single performance and payment surety bond. It’s important to understand the differences between the two types of protection:

  • Performance bonds provide protection for project owners and their investors (if any) against financial harm caused by contractors who fail to complete a construction project or otherwise do not live up to their contractual obligations.
  • Payment bonds protect subcontractors, workers, and suppliers who are not paid in accordance with the contractual arrangements. They also protect project owners by preventing mechanic’s liens on a property.

Those experiencing a financial loss because of their contractor’s unlawful or unethical actions can file a claim against the contractor’s performance and payment bond and be compensated for monetary damages.

Who Needs One?

Texas has its own version of the federal Miller Act that requires performance and payment bonds for federally funded projects valued at more than $100,000. Texas requires performance bonds for state-funded projects over $25,000 and payment bonds for projects over $25,000. So a state-funded public works project valued at $100,000 or more would require both a performance and a payment bond, while a similar project valued between $25,000 and $100,000 would require only a payment bond.

It’s becoming more common for private project owners in Texas to impose similar performance and payment bonding requirements.

How Does a Performance & Payment Bond Work?

A performance and payment bond is a legally binding contract involving three parties known as the obligee, the principal, and the surety.

  • The obligee is the project owner requiring the bond. The obligee sets the required bond amount and establishes the terms of the construction contract.
  • The principal is the contractor required to furnish the bond and bears the full legal obligation to pay valid claims.
  • The surety is the bond’s guarantor and agrees to extend credit to the principal for the payment of claims and assigns the premium rate for each principal through underwriting.

As the bond’s guarantor, the surety will determine whether a claim is valid and will pay a valid claim on behalf of the principal. The principal must repay the resulting debt to the surety or face legal action to recover the funds.

How Much Does It Cost?

The annual premium for a performance and payment bond is the product of multiplying the required bond amount by the premium rate. The premium rate is determined primarily by the risk of the surety not being repaid for claims paid on the principal’s behalf. The measure for that risk is the principal’s personal credit score.

A high credit score suggests that the risk to the surety is low, which deserves a low premium rate. A low credit score means the risk is higher, which warrants a higher premium rate.

A well-qualified principal typically pays a premium rate in the range of 0.5% 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 Texas 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 Texas Performance and Payment Bonds?

While Texas performance bonds and payment bonds can be purchased separately, the protection provided by each can be combined in a single performance and payment surety bond. It’s important to understand the differences between the two types of protection:

  • Performance bonds provide protection for project owners and their investors (if any) against financial harm caused by contractors who fail to complete a construction project or otherwise do not live up to their contractual obligations.
  • Payment bonds protect subcontractors, workers, and suppliers who are not paid in accordance with the contractual arrangements. They also protect project owners by preventing mechanic’s liens on a property.

Those experiencing a financial loss because of their contractor’s unlawful or unethical actions can file a claim against the contractor’s performance and payment bond and be compensated for monetary damages.

 

Texas has its own version of the federal Miller Act that requires performance and payment bonds for federally funded projects valued at more than $100,000. Texas requires performance bonds for state-funded projects over $25,000 and payment bonds for projects over $25,000. So a state-funded public works project valued at $100,000 or more would require both a performance and a payment bond, while a similar project valued between $25,000 and $100,000 would require only a payment bond.

It’s becoming more common for private project owners in Texas to impose similar performance and payment bonding requirements.

A performance and payment bond is a legally binding contract involving three parties known as the obligee, the principal, and the surety.

  • The obligee is the project owner requiring the bond. The obligee sets the required bond amount and establishes the terms of the construction contract.
  • The principal is the contractor required to furnish the bond and bears the full legal obligation to pay valid claims.
  • The surety is the bond’s guarantor and agrees to extend credit to the principal for the payment of claims and assigns the premium rate for each principal through underwriting.

As the bond’s guarantor, the surety will determine whether a claim is valid and will pay a valid claim on behalf of the principal. The principal must repay the resulting debt to the surety or face legal action to recover the funds.

The annual premium for a performance and payment bond is the product of multiplying the required bond amount by the premium rate. The premium rate is determined primarily by the risk of the surety not being repaid for claims paid on the principal’s behalf. The measure for that risk is the principal’s personal credit score.

A high credit score suggests that the risk to the surety is low, which deserves a low premium rate. A low credit score means the risk is higher, which warrants a higher premium rate.

A well-qualified principal typically pays a premium rate in the range of 0.5% to 3%.

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