Business, Legal & Accounting Glossary
A surety bond through which a contractor assures an owner that material and labor provided in the construction of a building will be fully paid for, and that no mechanics’ liens will be filed against the owner.
A payment bond is a sort of surety bond that is offered to contractors to ensure that all parties engaged in the project are paid. A payment surety bond is a form of bond that insures specific employees, subcontractors, and suppliers are covered from nonpayment. These are also known as “construction” and “labour and material.” These bonds are commonly referred to as “Miller Act Bonds” in government contracting.
Conditional or unconditional private construction bonds are available. An owner is totally shielded from having a lien put on their property under an unconditional payment surety. Conditional sureties (“pay when paid” clauses) provide only limited protection to the owner because a construction lien can be put on the owner’s property, but the owner then has a limited period of time to transfer the lien from the property to the surety.
Payment bonds are typically issued in tandem with performance bonds. Payment bonds guarantee that specific people will be paid, whereas performance bonds guarantee that a project will be completed as promised, including by the completion date. Payment and performance sureties both ensure that applicable laws and regulations are followed.
Bonds are used to collect subcontractors, sub-subcontractors, labourers, and material suppliers. Professionals such as architects, for example, have recourse under the construction payment bond in various circumstances. Project owners file surety bond claims if the project is not finished in its whole or at all. Work that is not finished by the agreed-upon deadlines frequently triggers a “liquidated damages” clause, which requires the contractor to deduct a set cash amount every day from the contract fee.
Simply explained, they are legal contracts that guarantee that the corporation (the surety) providing you the bond will assume your financial duty to another party (the obligee) if you fail to perform your legal obligations under an agreement up to the bond amount. You (the principle) commit under this contract to repay the surety firm if they need to pay on a claim on your bond.
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This glossary post was last updated: 8th January, 2022 | 0 Views.