Payment Bond

Definition

A payment bond is a guarantee by a surety that those persons who supply work and materials to a construction project will be paid for their work and materials.

Purpose

The purpose of a payment bond is to ensure that subcontractors, laborers, and material suppliers are paid promptly, protecting them from financial loss if the contractor defaults. This bond provides financial security and encourages the timely completion of projects.

Examples of Use

• Public Construction Projects: Commonly required on government-funded projects to ensure that all workers and suppliers are compensated.
• Large Private Projects: Used in large-scale private construction projects to protect the interests of subcontractors and suppliers.
• General Contracting: Contractors obtain payment bonds to fulfill contractual obligations and gain the trust of project owners and stakeholders.

Related Terms

• Performance Bond: A bond that guarantees the completion of a project according to the terms and specifications of the contract.
• Surety: A company that provides a financial guarantee to a project owner on behalf of the contractor.
• Lien Waiver: A document provided by a contractor, subcontractor, or supplier stating they have been paid and waive the right to place a lien on the property.

Notes

• Legal Requirement: Payment bonds are often required by law on public construction projects.
• Protection: Provides protection for project owners, ensuring that the project will not be delayed or halted due to payment disputes.