Mississippi Now Regulates Private Project Contract Bonds

A new piece of legislation which was recently introduced in Mississippi creates a regulatory framework for the use of contract bonds on private construction projects.

House Bill 869 was enacted on March 19th, 2019 and was introduced as Section 85-7-432 in the Mississippi Code of 1972. It stipulates how performance and payment bonds for construction contracts can be used for private projects.

You can find out the essentials from the new bill in the sections below. This information will equip you to work in legal compliance with contract bonds required on private projects in Mississippi.  

The new rules in House Bill 869

House Bill 869 comes into force as of July 1st, 2019. The central stipulation that affects construction specialists in the state is that performance bonds and payment bonds can be required for private contracts. In case a contractor provides a payment bond for a project, the bond substitutes the liens needed for subcontractors or suppliers.

The purpose of contract bonds is to protect project owners against contractor’s default and other failures or illegal actions. They are often obligatory for public projects over certain thresholds, which vary for federal and state contracts.

Performance bonds serve as a guarantee that a contractor will complete the work on a project in a timely manner and according to strict quality standards. The bill defines that their amount should be at least that of the contract amount and that they should be payable to the project owner. 

As for payment bonds, they ensure that the main contractor on a construction project will make all due payments to employees, subcontractors, and suppliers. According to the new bill, payment bonds should also be in an amount no less than the contract amount. They should be payable to the project owner, but conditioned on the full payment to all subcontractors, laborers, and suppliers. Employees and subcontractors can file a claim in case they have not received their payments within 90 days of completing the contracted work. Second-tier contractors are also able to place claims on the main contractor's bond. 

Suits on performance bonds have to be initiated within one year of the following (whichever is the earliest):

• The final payment to the contractor has been made
• The contractor has defaulted
• The project owner has cancelled the contract

In the case of payment bonds, suits can be launched within one year after the labor has been executed.

The new legislation also sets a deadline for providing copies of the contract bonds for public and private projects. They have to be given to the project owner and other interested parties within 30 days of having been requested. In case the contractor fails to do so, they are liable for any costs on potential claims, as well as for legal fees.

According to specialists, the new law resembles the Little Miller Act in terms of the surety qualifications and the procedure in case of bond claims. In addition, it may become a model for shaping the regulatory framework of private project bonding in other states.

How to get a contract bond for a private project

As a contractor, it’s important to know what your responsibilities are under a contract bond, so that you can comply with them and avoid claims. However, you also need to learn how to obtain the necessary bonding, so that you can start work on projects that require it.

The essential rule that you should know about bonding is that you do not need to pay the whole bond amount that you have to post. Instead, you need to cover a small percentage of it, which is called the bond premium. It is formulated on the basis of your personal and business finances.

When you apply for a performance or payment bond, you have to provide information about your credit score and company finances. This is how the surety can assess the level of bonding risk and thus set your bond premium. The rates for contractors with stable finances are typically in the range of 1% to 5%.    

Do you have any more questions about the new rules for contract bonds on private projects in Mississippi? You can reach us at 866.450.3412.