As you know, payment bonds assure subcontractors and suppliers
that payment will be made for the labor and materials they provide
to a project. This protection especially is important on public
projects where payment bonds serve as substitutes for the lien
rights a subcontractor or supplier would otherwise have if the
project was not being performed for a public owner.
However, you may not be aware of the legal relationships created
through a payment bond, the various types of payment bonds, the
scope of protection provided under a payment bond or the process
you will be required to follow to recover under a payment bond.
It is important to realize payment bonds are not insurance
policies. They are contracts that essentially obligate the surety
and principal to pay for labor performed on and materials provided
to a construction project. The contractor who executes the bond
will be the principal on the bond. The party to whom the principal
is bound under its contract will be the obligee. When a prime
contractor provides a payment bond, the obligee will be the project
owner. When a subcontractor provides a payment bond, the obligee is
likely to be the general contractor. Those supplying labor or
materials to the project often are referred to as claimants...
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