Tennessee 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 Tennessee 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 Tennessee Construction Bond?

Tennessee construction bonds are the first line of defense for construction project owners against the financial losses they can incur when a contractor violates statutory and/or contractual requirements. Specifically, construction bonds:

  1. require the contractor (the bond’s “principal”) to comply with all applicable laws and the terms and specifications contained in the construction contract, and
  2. provide a source of funds for compensating the project owner (the bond’s “obligee”) or other injured party for monetary damages caused by the principal’s unlawful or unethical actions.

What Types of Tennessee Construction Bonds May Be Needed?

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

How Does a Tennessee Construction Bond Work?

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.

How Much Does It Cost?

The premium cost of a Tennessee construction bond is calculated by multiplying the bond amount by the premium rate assigned by the surety through underwriting. The primary underwriting concern is the risk of the surety not being repaid for credit extended to the principal—a risk readily measured by the principal’s personal credit score. 

A high credit score means the risk of the surety not being repaid is low, so the premium rate will be low. A lower credit score warrants a higher premium rate to offset the elevated risk. 

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 Tennessee 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 Tennessee Construction Bond?

Tennessee construction bonds are the first line of defense for construction project owners against the financial losses they can incur when a contractor violates statutory and/or contractual requirements. Specifically, construction bonds:

  1. require the contractor (the bond’s “principal”) to comply with all applicable laws and the terms and specifications contained in the construction contract, and
  2. provide a source of funds for compensating the project owner (the bond’s “obligee”) or other injured party for monetary damages caused by the principal’s unlawful or unethical actions. 

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 bond
  • 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.

The premium cost of a Tennessee construction bond is calculated by multiplying the bond amount by the premium rate assigned by the surety through underwriting. The primary underwriting concern is the risk of the surety not being repaid for credit extended to the principal—a risk readily measured by the principal’s personal credit score. 

A high credit score means the risk of the surety not being repaid is low, so the premium rate will be low. A lower credit score warrants a higher premium rate to offset the elevated risk. 

The premium rate for a principal with good credit 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 Tennessee construction bond.