Payment Bonds

Owners (obligees), subcontractors and suppliers (beneficiaries) rely on construction payment bonds to guarantee they will be paid the monies that they are due from a contractor (principal). Both parties may seek damages on a payment bond. The subcontractors and suppliers are assured of payment through a payment bond, which benefits the owner.

Payment bonds are typically issued in conjunction with construction performance bonds and are typically requested together as a performance and payment bond. Payment bonds help guarantee the owner, suppliers and subcontractors will not be adversely affected in the event of a contractor default.

Construction payment bonds help provide peace of mind for contractors and project owners by ensuring the terms of a contract will be enforced and the project will be completed on time.

The owner may benefit by providing subcontractors and suppliers a substitute to mechanics’ liens on private projects. If the principal does not pay them, they may collect from him or the surety under the payment bond, up to the penal sum of the bond. The penal sum in a payment bond is intended to cover anticipated costs of the subcontractor and supplier – often less than the total amount of the prime contract.

Mechanics’ liens cannot be placed on public property, making payment bonds particularly important. Construction payment bonds financially protect contractors and subcontractors who are working on public property, while a mechanic’s lien provides assurance the outstanding debts will be paid when the property is sold. Private projects costing more than $100,000 may also require a payment bond.

McGovern Insurance is an experienced insurance and bonding agency that understands construction payment bonds. Call us at (650) 593-8216 or complete the form on this page to get your personalized construction payment bond quote.