Toll Free: 866-430-3322 7:30AM - 4:30PM MST
What are Performance and Payment Bonds?
A payment bond is a surety bond that is issued to a contractor before the start of a project that ensures subcontractors, laborers, and material suppliers are paid for the work they do in a timely manner. Unlike a performance bond that ensures satisfaction of the completion of a project, a payment bond ensures that the right people get paid for their work no matter the outcome of the project. This type of surety bond is required by the contractor prior to the start of the project. A payment bond is an agreement between the person requesting the bond (usually subcontractors, material suppliers, or laborers) and the principal (usually a contractor) who holds the bond, acknowledging that if payment is not made in a timely manner, the obligee can make a claim on the payment bond to the surety.
A performance bond, sometimes referred to as a contract bond, is a surety bond that is issued to to contractor prior to the start of a construction project that guarantees the contractor will complete the obligations of the project to the satisfaction of the owner of the project as agreed upon in the initial contract. The performance bond is meant to protect both parties involved in the project. The Principal, the general contractor of the project, is often required to obtain a performance bond to ensure that the project is completed within the framework and timeline agreed upon, and if failure to do so, the obligee of the principal can file a claim against the performance to the surety. The Principal is then required to repay any money that the surety paid out on behalf of the claim made. All claims should be worked out and paid as soon as possible as to not risk losing licenses and business in the future. Claims against a surety bond can be detrimental for any contractor.
Why Surety Place?
The Surety Place StoryThe Surety Place, previously known as Surety Placement Services, was founded in 2002 with a goal to bring innovation and a high level of service the industry had not yet seen. As an industry leader from the start, we are a people first surety bond partner that you can trust, offering access to agents and businesses to achieve the right solution at the right time.
Industry ExpertiseWith 39 years of combined experience, we have the industry knowledge and expertise to help with any bond! As one of the only true specialists within the industry we supply access, partnerships, and specialty programs with numerous “A” rated sureties across the nation. We are here to help you service all your bonding needs with no appointments or contracts necessary.
A People First CompanyWe establish a relationship with you in order to truly understand your business focus whether large or small, complicated or difficult. Our industry knowledge coupled with our specialty programs, we have the unique ability to write your bonds when no one else can, and because of our relationship with you we will stand behind you in support to achieve your business objectives.
We say yes!We understand business. We also understand how difficult it can be when something that seems like such a small piece of the puzzle gets in the way of closing the deal or moving forward. No matter the size of the bond or how complicated, Surety Place is built to find an answer. Poor credit, financial hardship, fast growth, or just getting your company off the ground? We have options for you too.
Contact us today!
FAQs About Payment and Performance Bonds
FAQ’s About Performance and Payment Bonds
Q. When are performance and payment bonds issued?
A. Performance bonds are issued usually in conjunction with a payment bond prior to the start of a construction project.
Q. What is the average cost of a performance or payment bond?
The cost of performance and payment bonds depends on the size of each individual project in which you are bidding on. Your personal credit score will also affect how much your premium is and the amount you will pay to the surety in order to obtain the bond. Be aware that the bigger the project, the more in-depth the surety will look into the Principal to ensure that their financial background, work and project history, and current or past bonds are all in good standing before determining how much the premium for either bond should be.
Q. How do claims against performance and payment bonds work?
A. Surprisingly, both the principal or the obligee can make a claim on the performance and/or payment bond. Usually the obligee will be the one to make a claim against the surety bond, stating that some part of the original contract was not completed or the right people were not paid out. Every claim must be investigated and proved before any payment is made for the claim. The best way to avoid a claim against the performance or payment bond is to not only follow the signed contract, but also work closely with the surety to make sure all issues are fixed in the most efficient manner.
Q. Do you have to have good credit to obtain a performance or payment bond?
It is possible to obtain a performance or payment bond with bad credit, your premium on the bond will most likely just be higher. It is ideal to have good credit, but at The Surety Place, we know that sometimes things happen in life that negatively effect our credit scores, so we are here to help you no matter what your circumstances are. We provide solutions just when you thought there were none!