AEC definitions
A payment bond is a surety's promise that subcontractors, suppliers, and sometimes laborers will be paid if the contractor does not pay them. On public projects, where a mechanic's lien is usually unavailable, the payment bond is the statutory substitute. A claimant must follow the bond's notice deadlines.
Definition
The owner requires the bond so the people who furnish work are not left unpaid, and so liens do not disrupt a private project. The Miller Act requires payment bonds on federal projects above a threshold. States have little Miller Acts. Claimants who have a contract with the prime usually have a simpler claim than claimants further down the chain, who often must give an additional notice. The performance bond does not pay those claimants. Filing on the wrong bond, or after the deadline, is a common way to lose a valid debt.
In depth
First-tier subcontractors and suppliers who deal with the prime are the core claimants. Second-tier claimants are covered only as the statute or bond allows, often if they gave notice within a set time after last furnishing.
Employees may have remedies outside the bond. Do not assume every unpaid person on the site is a bond claimant.
Federal and state statutes set windows measured from last work or last supply. The notice must say what is claimed and must go to the parties named. A lawsuit filed after the limitation period does not revive a late notice.
Send notices even when negotiations are friendly. The deadline will not wait for the settlement conversation.
The bond does not automatically cancel lien rights unless the law or a proper waiver says so. Owners use both: a bond for solvent recovery, and waivers so liens are released as payments are made.
A payment bond does not mean the owner should skip waivers.
Multiple claimants share a bond amount. Waiting to claim does not increase the sum. If the bond is insufficient, recovery is pro rata under the governing law.
Change orders that increase the contract should be reflected in the bond if required.
An owner finishes a defaulted job under the performance bond. A supplier gets paid under the payment bond.
Mixing the forms delays both. The claim letter should name the bond, the amount, and the work.
Examples
A supplier unpaid by a subcontractor on a federal project gives the Miller Act notice within the statutory period and claims against the payment bond.
An owner facing a contractor default calls the performance bond, not the payment bond, to complete the work.
A private owner collects lien waivers each month and also required a payment bond at award.
FAQ
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