What Is a Payment and Performance Bond?
In the construction industry there is virtually an endless number of things that can go wrong. There are also numerous opportunities for disagreements between the various parties involved in a construction project. Executing written contracts is one way to reduce the likelihood of problems or disagreements. Requiring different types of bonds is another. In fact it is very common to require a general contractor to take out a payment and performance bond before beginning a construction project. If you are in the construction industry, or are employing a contractor for a construction project, you should have at least a basic understanding of what a payment and performance bond is and why you may need one.
Although they are commonly used together, a payment bond and a performance bond are actually separate bonds. A performance bond serves as security that the contractor will perform according to the terms of the construction contract. In addition, a performance bond also ensures that the contractor will complete the work for the agreed upon price and that the work will be completed within the time allotted in the contract.
A payment bond offers protection to certain laborers, material suppliers and sub-contractors against nonpayment. In some cases, a sub-contractor, material supplier, or even laborer may be able to file a mechanic’s lien if payment is not made as agreed upon; however, a mechanic’s line is not always an option, depending on local or state law. Moreover, a payment bond usually offers a more direct route to follow is payment is not forthcoming.
A payment and performance bond works in the same way as any other bond. A contractor must provide the bondsman with information regarding the business and project in order to obtain a premium price for the bond. The contractor then pays the premium and the bond company issues the bond. The bondsman, or surety, is then responsible in the event the contractor fails to perform or fails to pay according to the terms of the contract.
If you have specific questions relating to a payment and performance bond issued to you, or relating to how you can file a claim against a bond, contact an experienced Conshohocken, Pennsylvania real estate attorney as soon as possible to discuss your options. Contact the real estate law attorneys at Curley & Rothman, LLC by calling 610-834-8819 today to schedule your free consultation.