Payment Bonds

This article was written for the Texas Contractor and first appeared here.

A payment bond guarantees payment of subcontractors, laborers, and suppliers on a project. Payment bonds are required on public projects for prime contracts (the contract between the general contractor and governmental entity) greater than $25,000. But they are common on private projects as well, where they not only provide payment security but also protect the owner's property from mechanic's liens. If the project is bonded, a subcontractor/supplier should always acquire a copy of the bond before starting work or shipping materials.

On a private project, an unpaid subcontractor/supplier might lien the property in order to persevere its payment rights. However, some private owners may seek to protect their property from liens and require the contractor to acquire a payment bond. The payment bond creates an alternate source of funds for subcontractors/suppliers seeking recovery of progress