Payment bonds are a type of surety bond that is required by contractors to guarantee that all parties involved in the project including the subcontractors, material suppliers and workers will be paid, regardless of the project’s completion. The cost of these is based largely upon the contract value of the job, and they should be presented along with performance bonds. Therefore, all contractors who want to find work in their state will need to be eligible for these bonds.
Since it is difficult to predict the outcome of a project and its completion, project owners usually require Payment Bonds. Generally, all the parties involved with a project are paid when the project is completed as per the given specifications.
Payment bonds are typically issued with a performance bond. Having a payment bond in place protects the obligee from being held responsible if the principal does not pay their subcontractors.If there is any default on payment, the payment bond guarantees that all parties will be paid for their services regardless of if the project is completed or not.