A payment bond is a surety bond posted by a contractor to guarantee that its subcontractors and material suppliers on the project will be paid.
The payment bond forms a three-way contract between the Owner, the contractor and the surety, to make sure that all subcontractors, laborers, and material suppliers will be paid leaving the project lien free.
They are required in contracts over $35,000 with the Federal Government and must be 100% of the contract value. They are often required in conjunction with performance bonds.
Assuming you are familiar with both terms, some builders do not know the difference between these two. The Mechanic's Lien is a type of bond but it cannot be used against public property, so that's why the payment bond is typically required in government-funded projects.
The payment bond is the only option or tool that some suppliers and subcontractors have so they can get paid for their services and labor. Project owners are now using subcontractor default insurance in conjunction with payment and performance bonds.
How Much Does a Payment Bond Cost?
Although not usual, a payment bond can be required without having a performance bond bundled together. The payment bond needs to be purchased during the bidding process and submitted to the owner once the project has been awarded.
Payment bonds will normally specify the time and payment to employees, suppliers, and subcontractors. When payment bonds are issued with a performance bond, it is estimated that the premium will be between 1% and 2%, although the actual cost may vary depending on the credit history and background check of the contractor requesting the bond.
How to Get a Payment Bond FAST!
Applying for a Payment Bond is not difficult, as we’ve simplified the process for you into easy to understand steps, which can be found on our Payment Bond application.
Finally, if you would like to speak to a live customer service representative to walk you through the process of applying and getting approved for a Payment bond today, we are here to answer all questions.
Our professionals are committed to easing the process for you. call us at (800) 921-1008, Live Chat with us below, or contact our Surety Bonds Manager at Bonds@BFBond.com