Surety payment bond
June 23rd, 2010
Surety payment bond
Surety payment bond is a type of contract bond in which the surety guarantees the payment of money by the contractor to people who have provided labor, equipment or material supplies for the fulfillment of the contract. It is also known as labor and materials bond as it ensures that the imbursements to these vendors, subcontractors who have helped the primary contractor to fulfill the terms of the contract are made properly. In case of a default, the surety has to make the payments regarding any claims that are made up to maximum limit which is defined in the surety payment bond as its penal amount. If the claims exceed the penal amount, then the payout is done on a prorate basis and under no conditions can the liability of the surety exceed that of the penal amount. There are many types of surety payment bond. The first type is the public works bond which is mandatory as per the laws of the state. As per the Miller Act, before a contract for any public work is awarded to a contractor, a surety performance bond and a surety payment bond is mandatory. The second type of surety payment bond is the private works bond which may or may not be statutory. The state may have a mandate for a surety bond in certain private projects, while for others, the owner may ask the contractor to provide a surety payment bond although there is no legal mandate as such. The extent of coverage under the surety payment bond is as per the terms defined in the bond language. Generally, the coverage is not extended to those who are very remote to the principal. For example, as per the Millers Act, the coverage is given only up to the first tier and the second tier suppliers or vendors. Also, the term labor and material is also defined to determine what comes under the ambit of these terms. To site an example, labor and material does not include insurance premiums to be paid for the workers. Also, labor is defined in the surety payment bond as physical labor and not the labor of an engineer or an architect unless they also work on the field of the project. In case of a replacement of the contractor by another contractor and the replacement contractor defaults, then claims can be made under the original surety payment bond and the surety will be obliged to make the payments for the claims. There are a lot of providers for surety payment bond and most leading surety companies provide these bonds.