What Is A Payment Bond?
A payment bond ensures that a contractors material suppliers and subs are paid according to contract and is very commonly used on public projects where mechanics liens are not allowed. A payment bond is a type of contract bond that is often packaged with a performance bond by many sureties. The need for a performance bond and payment bond often arises out of a contractor successfully winning a public job opportunity and posting a bid bond in the process.
What Is the Difference Between Payment Bonds vs Performance Bonds?
Payment and performance bonds are similar, but they are not the same thing. The confusion between them often arises from the fact that they are generally purchased together and can both be required after winning a bid. Payment bonds ensure that contractors pay their material suppliers and subcontractors according to their contracts. Performance bonds provide a financial guarantee to project owners that their contractor will perform according to contract terms. Both types of bonds are generally required on public projects.
How Much Does A Payment Bond Cost?
Payment bond costs can vary but are often around 3% of the contract amount assuming the applicant has sound financials. For example, if your bond requirement is for $200,000, then a 3% premium would translate to a $6,000 bond cost. Payment bond costs will depend on several factors including the financial strength, credit score and experience of the contractor requesting the bond.
How Do You Get a Payment Bond Quote?
Getting a payment bond quote is simple. Just complete the quote form on this page and a Schaedler Insurance contract bond specialist will follow up with you promptly to provide the appropriate application for your particular bonding needs and answer any questions you may have. In a rush? Call our office now at 1-800-682-1552 and we can expedite your application with our underwriters.
What Is a Payment Bond Claim?
If during the course of a project, an issue arises involving the payment of a subcontractor, supplier, or other party, the wronged party can file a claim on the payment bond. If the claim is valid and a breach of contract has occurred, then the surety that issued the payment bond will compensate the wronged party for any damages they might have incurred.