Learn more about payment bonds, and apply today. Absolute Surety offers surety bonds nationwide through a convenient online application system.
What Are Payment Bonds?
The purpose of a payment bond is to ensure that contractors pay their subcontractors, laborers, and suppliers in a timely manner. Like other types of contractor surety bonds, they may be required as a condition of being awarded a construction contract by either a public or private sector entity. In fact, they are often required to be submitted along with the contractor’s bid, usually in conjunction with a performance or contract bond. The resulting combined bond is referred to as a performance and payment bond (P & P Bond).
These bonds serve as the contractor’s guarantee that payments to subcontractors, laborers, and materials suppliers will be made as set forth in the contract. The surety company issuing the bond guarantees that it will pay damages to demanding parties if the contractor fails to pay their bills.
Who Needs Them?
Federal law requires contractors awarded a federal contract in excess of $35,000 to purchase a payment bond in an amount equal to the total contract value. All states have similar legislation requiring contractors to purchase a payment bond as a condition of being awarded a construction contract by a state agency. Many private sector construction project owners also require contractors to obtain these bonds.
How Do They Work?
If a contractor fails to pay them, subcontractors, suppliers and laborers can file a claim against the bond within a certain period of time. The surety company will pay claims that are determined to be valid. The contractor is then required to repay the surety, or the surety will file suit to recover the amount paid out in claims plus court costs and legal fees.
What Do They Cost?
The total amount of the bond is a percentage of the total contract amount. The premium the contractor will pay to purchase the bond is a percentage of the total bond amount. That percentage is referred to as the premium rate.
The surety evaluates bond applications in terms of the contractor’s financial stability and personal credit history. For larger bond amounts, the surety will take a close look at the contractor’s business financials and determine the likelihood that the contractor will make timely payments to subcontractors, laborers, and suppliers. If your application is approved, you will most likely pay a premium of between 1-4% of the bond amount.
Use our convenient online system to apply for a payment bond today.
"Thank you guys so much for the quick response and great rates on all my contractor bonds. With all the other headaches of running a business it’s great to know obtaining the bond with you all is not one of them."
Kevin McElroy, Performance One Electrical Services, Inc.