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Construction Payment Bonds

Construction Payment Bonds

Construction Payment Bonds guarantee that owners (obligee), subcontractors and suppliers (beneficiaries) will be paid the monies that they are due from a contractor (principal). Both the obligee and the beneficiaries may seek damages on a payment bond. An owner benefits indirectly from a payment bond in that the subcontractors and suppliers are assured of payment and will continue performance.

A Payment Bond is typically issued in conjunction with a Construction Performance Bond. These two bonds are typically requested together as a Performance and Payment Bond. Together these two bonds help to guarantee that the owner, suppliers, or subs will not be adversely affected in the event of a contractor default.

Construction Payment Bonds help ensure that the terms of a contract will be enforced. These bonds provide peace of mind for contractors and project owners and server as a guarentee that a projet will be  completed on time and in accordance to the contract.

On private projects, the owner may also benefit by providing subcontractors and suppliers a substitute to mechanics’ liens. If the principal fails to pay the subcontractors or suppliers, they may collect from the principal or surety under the payment bond, up to the penal sum of the bond. Payments under the bond will deplete the penal sum. The penal sum in a payment bond is often less than the total amount of the prime contract, and is intended to cover anticipated subcontractor and supplier costs. Payment Bonds are particularly important on projects because Mechanic’s liens cannot be placed on public property. A Mechanic’s lien provides the assurance that outstanding debts will be paid when the property is sold. Construction Payment Bonds provide security that payments will be made to contractors or subcontractors who are working on public property. If the project is in excess of $100,000 on private property it may also require a Payment Bond.

For more information regarding Construction Bid Bonds, please call us at 866.376.2510 today.