Payment Bond

A payment bond, as its name suggests, guarantees the payment of the services provided by subcontractor or suppliers to the contractor for a certain project. It acts in lieu of a mechanic’s lien (can only be placed on private property) to assure the subcontractors, laborers and material suppliers that their service will be compensated in one way or another, as stated in the job contract.

 

Since liens may not be placed on public properties, payment bond will be the only guarantee for the service and material providers. If a claim is made due to failure of payment, the claim is filed on the bond. The bonding company will act as the neutral third party to administer the contract agreement.

 

Payment bonds and performance bonds are usually submitted together and referred to as the “Payment and Performance” bond.