Payment Bonds are a type of surety bond that is commonplace in the construction industry. They ensure that a contractor will pay the subcontractors and material suppliers, as per the contract.

A Payment Bond is posted by the contractor and is usually required along with a performance bond. Both are designed to protect the project owner (obligee).

Who Is Responsible for GettingaPayment Bond?

A contractor takes out a payment bond before a project begins from an accredited Surety company. The bond guarantees that the parties involved in a project will be paid accordingly.

The Surety is a licensed company who is authorized to write or issue bonds. Through the bond, the contractor promisesto execute the project according to their contract. If the contractor fails to adhere to the terms of the contract, the Surety will pay on the contractor’s behalf.

When is a Payment BondRequired?

A payment bond is usuallyrequired in State, Country and Federal projects. It is mandatory on Federal government contracts over $30K. Each state has their own requirement, ranging from $25K to $50K.

Payment bonds are not limited to government projects. In private projects, the bond protects the property from liability in the event of any claims of non-payment.

The payment bond is often required along with a performance bond. It is usually obtained during bidding and must be submitted once the bid is won.

Who Benefits From the Payment Bond?

The payment bond is a three-way contract between the contractor (principal), the project owner (obligee), and the Surety company.

  • Principal (the contractor): They usually needs the bond to win a contract.
  • Obligee (project owner): It protects the owner from assuming financial responsibilityif the contractor does not pay their subcontractors.
  • Sub-contractors: With a payment bond in place, sub-contractors can be assured that they will receive payment for their services.

Nielson, Hoover & Company are licensed to provide Payment Bonds and Advance Payment Bonds. We pride ourselves on our honesty andreliability to our clients. Contact us online or through our app to learn more.

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