Payment Bonds on a Private Construction Project
Surety bonds are a very efficient way to shift the risks associated with construction away from project owners. For this reason, both the federal and state governments require that contractors performing on projects over particular dollar amounts get bonded. But securing a project with a surety bond is not limited to government projects. More often than not, private construction projects also make use of so-called contract or construction bonds to secure financial guarantees. For example, bonds that guarantee payments are a very efficient way of protecting subcontractors, laborers and suppliers and mitigating risks for the project. However, how these bonds work and why they are useful is not always understood. HOW PAYMENT BONDS WORK When a surety issues a bond to a contractor, it guarantees to the project owner (the bond obligee) that the bonded contractor will comply with their obligations under the contract. А payment bond in particular guarantees that the contrac...