Several bonds are available in the market. These bonds are associated with any company along with the contractor to which the performance is guaranteed. It is done in the form of a written agreement. Out of the several contract bonds, payment bonds are the one which assures the proper payment of the designated sub-contractors and laborers in the contract. This payment is done by the contractor himself.
But payment bonds are not required for payments of a lesser amount of money. If you go out and ask for a payment bond of your contract worth $7,000, you surely won’t be provided one. Only the contracts whose budgets are over $35,000 require such bonds, otherwise not. Also, the contracts should be with the Federal Government.
These were some of the criteria which you need to meet while you go out to occupy a payment bond. Such bonds play a very vital role and have great significance in the domain of surety bonds. Let me highlight some of the significances of it.
Payment Bonds on Construction Projects
The bond forms a three-way contract between the three parties – the owner, the surety, and the contractor. The reason behind it is to assure that everyone, including the mechanics, laborers, and subcontractors get paid properly. In case the surety fails to pay the payments, you will surely get your demands through this bond.
The most used form for this bond is the AIA A312-2010 Performance and Payment Bond form. The form throws light into some important changes as compared to the previously used 1984 AIA 312. Though some companies still use the previous form, through the use of the recent form, many oblige, sureties, and principals got facilitated to overcome several circumstances in their construction project.
What is the Cost of a Payment Bond?
The cost of a payment bond varies with the conditions of your contract. The amount is nothing but a certain percentage of the total amount of your contract. You have to buy a payment bond through a bidding process.
The premium cost of a payment bond usually ranges between 1%-2%. But if you have a great score of your credit, you will be awarded a payment bond ranging between 1%-4% of the total amount of the bond.
Better than Mechanic’s Lien
In a comparison between a payment bond and a mechanic’s lien, it is found that a payment bond progressively surpasses a mechanic’s lien. A mechanic’s lien cannot be used for public property, but a payment bond can be used. This is the reason behind the extensive use of payment bonds for government projects.
Many subcontractors and suppliers now solely rely upon the payment bonds for claiming their payment. The bonds though succeeded in maintaining this goodwill.
Payment Bond Claims are Easy to File
A series of manageable steps are needed to be followed by the laborers, suppliers, and sub-contractors to claim a payment bond. All you have to do is to file a notice within the given period, but only after the work is completed. This period is set by different regulators in different kinds of projects such as private, state, and public projects.
Easy to Get
Getting a payment bond isn’t a difficult procedure anymore. There are specific useful websites where you can apply for a bond. Further proceedings are mentioned there.