A payment bond guarantees your subcontractors and suppliers are paid. It is usually paired with a performance bond and is standard on California public works.
Premium is a percentage of the bond amount, set by underwriting. The figures above are statutory amounts, not what you pay.
What a payment bond does
A payment bond (also called a labor and material bond) guarantees that the subcontractors, laborers, and suppliers on a project are paid. On public projects, those parties cannot file a mechanics lien against public property, so the payment bond is their security. It is almost always issued alongside a performance bond.
When you need one
Payment bonds are required on most California public works contracts above a statutory threshold and are frequently required on larger private jobs. If your contract calls for a performance bond, it almost certainly calls for a payment bond too.
What it costs
When written with the performance bond, the payment bond is generally covered by the same combined premium, a percentage of the contract amount set by underwriting. We quote the pair together for your specific project.
Bad credit or a prior claim? We place it.
Declined by an instant-issue site does not mean declined everywhere. We shop hard-to-place markets and work with credit challenges. Underwriting still applies.
Reviewed by Michael Melshenker, CEO. Figures verified against CSLB and CA DOI sources.
What is a payment bond?
A payment bond guarantees that the subcontractors, laborers, and suppliers on a project get paid. If the prime contractor does not pay them, they claim against the bond instead of liening the property. It is commonly written at up to 100% of the contract.
How much does a payment bond cost?
Payment bonds are almost always issued alongside a performance bond, and the pair is quoted as a single premium against the contract amount rather than priced separately. The rate is driven by the contractor's financial strength and the size and type of work.
Who requires a payment bond?
Public agencies require one from the prime contractor on bonded public works, because public property cannot be liened: the bond is what replaces the lien right. Private owners and lenders require them on larger projects, and generals require them from significant subcontractors.
How fast can a payment bond be issued?
Payment bonds are issued together with the performance bond, on the same timeline. Inside an established bonding line that is often a day or two. A contractor's first submission takes considerably longer, because the surety underwrites the company before it underwrites the project.
Can I get a payment bond with bad credit?
Contract surety looks first at capital, capacity, and character rather than a credit score. Where credit, a short track record, or a prior loss is the obstacle, the SBA Surety Bond Guarantee program exists so a surety can take a file it would otherwise decline.
Can I buy a payment bond online, or do I need a broker?
Payment bonds are not instant-issue products, and they are rarely issued apart from a performance bond. Both are drawn against an underwritten bonding line. Establishing and growing that line across carriers is the broker's function, and it sets the size of job you can take on.
What does the surety need to issue a payment bond?
The same submission as the performance bond: CPA-prepared financial statements, a work-in-progress schedule, the contractor questionnaire, personal financial statements and indemnity from the owners, plus the contract, the bid spread, and the obligee's required bond form for that job.
What happens if a claim is filed against my payment bond?
The surety investigates and pays what is validly owed, up to the penal sum. You then reimburse it in full under the indemnity agreement, and the claim joins your surety record, where it affects capacity on the next job. Respond to the surety's first notice immediately.
When does a payment bond obligation end?
It runs until the claim window for unpaid subcontractors and suppliers has closed. That window is set by the statute governing the project and by the bond form itself, so it varies between public and private work. It does not simply end at substantial completion.
Who can claim on a payment bond?
Subcontractors, laborers, and material suppliers who furnished labor or materials to the bonded project and were not paid. The owner is not the beneficiary; the owner benefits indirectly because the bond keeps claims off the project. The contractor reimburses the surety for whatever it pays.
How do I verify a payment bond is genuine?
Ask for the bond with its power of attorney attached, confirm the surety is admitted in California through the Department of Insurance, and verify the bond number with the surety directly. Suppliers checking bondability before extending credit should do the same before delivering material.
What is the difference between a payment bond and a mechanics lien?
A lien attaches to the property; a bond claim attaches to the surety. Public property generally cannot be liened, so on public works the payment bond is the remedy that replaces the lien right. On private bonded work an unpaid subcontractor may have both routes open.
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