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What is a payment bond?

What is a payment bond? A payment bond is a third party guarantee that a company will pay the bills associated with a particular contract. It is a type of surety bond.  There is no “blanket” payment bond, a bond that would guarantee all of companies bills get paid. They are always contract specific.

When would I need a payment bond?

As mentioned previously, a payment bond is a contractual requirement. The most common use of a payment bond is in support of a public works contract. Most publicly bid projects will require a performance and payment bond. The payment bond guaranteesWhat is a Payment Bond? that all sub contractors and suppliers will be paid. Private jobs can also require a payment bond as smart developers will want a guarantee of a lien free project. Many project lenders may also require a general contractor provide a payment bond as the bank has a vested interest in seeing that a project is completed lien free. Finally, many general contractors will require sub contractors to provide payment bonds. If a sub contractor fails to pay its subcontractors and suppliers the general contractor would be obligated to make those payments, even if it already paid the sub contractor.

Keep in mind that this bond is in place to protect the issuer of the contract, not the party that provided the bond. If there is a claim on a payment bond, the party that provided the bond will be expected to reimburse the surety for its loss including reasonable fees incurred by the surety.

Other resources for what is a surety bond? include the Surety Information Office, and the National Association of Surety Bond Producers, a surety industry trade group.

Payment bonds are a great way to guarantee a lien free project. Now that you know what a payment bond is, you can apply for one by clicking here.




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