Getting to know how to use public works payment bonds is crucial for any business that wants to work with the public sector, in particular for construction projects. Risks – particularly when working abroad – are often large. Many projects are affected by unexpected incidents, from weather to supplier failure or delays in the delivery of critical materials.
Call: (844) 612-7238 to get started
The aim of the payment bond is to reduce the ambiguity and provide protection for the financial aspects of the contract, so that both parties can be on good terms and the project is completed.
A payment bond for construction contracts is a surety bond that is posted by the contractor as a guarantee. The payment bond is a protection to ensure that subcontractors and suppliers on the project will be paid. A payment bond is often required in conjunction with performance bonds. They must be 100 percent of the contract value.
What is a payment bond?
Payment bonds are not to be confused with performance bonds which are a legal requirement. A payment bond is legally required for government and state contracts. The payment bond forms a three-way contract comprising the owner, the contractor and the surety. This is to make sure that all subcontractors, laborers, and material suppliers will be paid. It is rare for a Payment Only Bond to be requested. In this case, it would be billed at around 50 percent of the regular premium.
The bond guarantees that the work will be completed in a satisfactory manner and that all materials, suppliers, subcontractors and staff will be paid. Contractors should be purchasing a payment bond during the bidding process. The bid bond can then be submitted to the owner once it has been awarded.
The process of being approved for a payment bond
To gain approval for a payment bond, there will likely be a stringent process that looks into a variety of details regarding the contractor, past history, turnaround times, completion dates, the experience of the team and reliability. All, including risk assessments, angles of past work, will be looked into to determine eligibility of all aspects. This is where contractors benefit from Pinnacle Surety, we’ll work to get you the bond and expand your business. Partner with us.
What are the benefits of a payment bond?
Having a payment bond, subcontractor payment bond and performance bonds are mostly a legal requirement. Even if it is not a legal requirement, having these types of surety bonds in places will not only give the owner peace of mind but is advantageous in other ways too.
Having a payment bond in place provides the owner with the security of the contract and gives peace of mind that the contractor (also known as the “obligee”) will indeed enter into the contract upon gaining a successful bid.
A payment bond also removes the option for frivolous quotes and unattainable targets.
In the event of unforeseen complications, costs, delays or delays in supplies and materials and the contractor running into difficulties, the payment covers any lower tier payments that have not been fulfilled including employee wages, subcontractors and materials.
Bonds versus insurance
Surety bonds such as performance bonds and payment bonds should not be confused with insurance policies. What makes them different is that the insurer must protect the insured as well as cover them in the insurance policy. More significantly, they are not in a position to be reimbursed by the insured for any damages or costs associated with the lawsuit.
In contrast, the payment and performance bond provision guarantees that the surety firm examines the case of the client and the contractor to ensure that there is a legitimate claim and, most notably, that the surety requires the contractor to refund it for any claims for damages and costs, should the surety have to pay out on behalf of the contractor.
How much does a payment bond cost?
The cost of a payment bond can vary depending on many different factors. Typically, with a good credit rating contractors can expect to pay between two and four per cent
At Pinnacle Surety, we have over 25 years of experience working with construction companies and contractors. We can provide you with a service that meets your requirements. We can assist with getting the correct bonds required for your business and your project and make sure you know your options when it comes to additional benefits too. Trust our expert team to help simplify the process of securing payment bonds for construction companies.
Take advantage of our seamless process that makes finding a surety bond easy. We know you are busy so we do all the leg work for you, all you need to do is to enter your license details, follow the step by step instructions and you can be rest assured that you are fully covered and working inline with all the current required regulations and legal requirements.
How can I find out more about payment bonds?
If you need more information to help you ascertain the right level of protection you need for your construction company, our friendly team of experts are on hand to help you look at all your options and advice on the right type of surety bond for your construction project.