Tennessee Construction Bonds

In Tennessee, most contractors are licensed at the state level, which requires the purchase of a contractor license bond. Some local contracting authorities also issue contractor licenses and require contractor license bonds.

Tennessee’s “Little Miller Act,” the state’s version of the federal Miller Act, requires payment bonds for all public works projects, regardless of their value. But unlike most states’ Little Miller Acts, Tennessee does not require performance bonds for state-funded projects, though contracting agencies have the option of requiring them.

And although private construction projects are not subject to Tennessee’s Little Miller Act, private project owners may choose to require their contractors to purchase both performance and payment bonds. Additionally, both public and private project owners can require a bid bond from every contractor in a competitive bidding situation.

Other construction bonds that contractors operating in Tennessee may need to purchase include:

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

In addition to the obligee and the principal, there is a third party to a construction bond—the bond’s guarantor, known as the “surety.” The principal is legally obligated to pay any valid claim, but the surety guarantees that it will be paid. The mechanism for guaranteeing payment is an agreement to extend credit to the principal for that purpose. In fact, the surety will go ahead and pay the claim initially, allowing the principal some time to repay the resulting debt. However, a principal who does not repay that debt according to the surety’s credit terms is likely to be sued and end up paying court costs and legal fees in addition to the claim amount.