A payment bond is a may provide that a contractor will pay workers and suppliers
A payment bond is a promise backed by an insurance company or bonding firm. It guarantees that if a contractor doesn't pay the workers and material suppliers on a construction project, the bonding company will pay them instead. Think of it as insurance that protects the people doing the actual work from losing money because the contractor ran out of cash or disappeared.
Payment bonds are required by law on most public construction projects — those paid for with government money at the federal, state, or local level. Private projects (ones paid for by individuals or companies) may or may not require them, depending on what the property owner decides. The bond is not paid by the workers or suppliers. The contractor buys it and pays a premium, usually a small percentage of the total project cost.
The key difference between a payment bond and other types of construction bonds is what it covers. A performance bond guarantees the contractor will finish the work on time and to spec. A payment bond guarantees the contractor will pay everyone involved. Many projects require both.
Key Takeaways
- A payment bond protects workers and suppliers by guaranteeing payment from a bonding company if the contractor fails to pay them.
- Federal law requires payment bonds on most public construction projects over a certain dollar amount, though the threshold varies by project type.
- The contractor pays for the bond, not the workers or suppliers, and the cost is usually a percentage of the total project budget.
- If you are owed money on a bonded project, you must file a claim with the bonding company within a important date set by state law, typically between 90 days and one year after the last day you worked.
When payment bonds are required
Federal law requires a payment bond on most construction projects that receive federal funding. The threshold depends on the type of project. For building and construction work, the requirement typically kicks in at a certain dollar amount — this varies and you should check the specific project's contract documents to know for sure.
State and local governments often have their own rules that may be stricter than federal law. Some states require payment bonds on all public projects, regardless of size. Private projects have no federal requirement, but a property owner can demand one as a condition of hiring a contractor.
The bond amount is usually set at 100 percent of the contract price — meaning the bonding company guarantees payment up to the full value of the work. This protects workers and suppliers even if the project runs over budget or the contractor's costs exceed what was bid.
How to file a claim if you are not paid
If you worked on or supplied materials to a bonded project and the contractor did not pay you, you have the right to file a claim against the payment bond. You do not need a lawyer to do this, though some people hire one.
First, send a written notice to the contractor and the bonding company. This notice must state what you are owed, when you did the work or delivered materials, and why you have not been paid. Send it by certified mail so you have proof of delivery. Keep a copy for your records.
Next, file a formal claim with the bonding company within the important date set by your state's law. This important date is usually between 90 days and one year after the last day you worked or the last delivery you made. If you miss the important date, you lose the right to claim against the bond. The bonding company will investigate your claim and either pay it or deny it.
The difference between a payment bond and a lien
A mechanic's lien (also called a construction lien) is another tool workers and suppliers use to protect themselves. It is a legal claim against the property itself, not against a bonding company. If you file a lien and the contractor does not pay, you can force the sale of the property to recover what you are owed.
A payment bond is simpler and faster. You file a claim with the bonding company, not the court. The bonding company has a duty to investigate and pay valid claims. You do not have to prove a lien or go to court. However, a lien can sometimes recover more money because it is a claim against the property's value, while a payment bond is limited to the bond amount.
On public projects, you usually cannot file a lien because the property is government-owned. This is why payment bonds are so important on public work — they are often your only protection. On private projects, you may have both options, and it is worth understanding which one applies to your situation.
Who can file a claim against a payment bond
Not everyone who works on a project can file a claim. You must be a worker, supplier, or subcontractor who has a direct contract with the contractor or a direct contract with a subcontractor. This is called being in "privity of contract" — there must be a direct business relationship between you and the person who hired you.
For example, if a general contractor hired a subcontractor, and that subcontractor hired you, you can file a claim. But if you were hired by a sub-subcontractor (someone hired by the subcontractor), the rules become more complex and vary by state. Some states allow you to file; others do not.
Workers include laborers, equipment operators, and anyone else paid wages for work on the project. Suppliers include companies that delivered materials. Both have the same right to file a claim if they are not paid.
What happens after you file a claim
After you file a claim, the bonding company has a set amount of time to respond — usually 30 to 60 days, depending on your state. During this time, they will investigate. They may ask you for proof of the work you did, invoices, timesheets, delivery records, or correspondence with the contractor.
If the bonding company agrees your claim is valid, they will pay you. The payment comes from the bonding company, not the contractor. If they deny your claim, they must tell you why in writing. You can then dispute their decision, though this usually requires hiring a lawyer and going to court.
The bonding company may also try to recover the money they paid you by suing the contractor. This does not affect you — it is between the bonding company and the contractor. Your job is to file the claim and provide proof of what you are owed.
Payment bonds on federal projects
Federal construction projects are governed by the Miller Act, a federal law that requires payment bonds on most federal construction contracts. The bond must be in place before work begins. The bonding company is required to post a notice at the job site listing the bonding company's name and contact information.
If you work on a federal project and are not paid, you have the same right to file a claim against the payment bond. However, the important date to file is stricter on federal projects — you typically have one year from the last day you worked. State projects may have shorter important date, so check your state's law.
Federal projects also have additional protections. The contractor must provide a list of all subcontractors and suppliers to the federal agency. This creates a paper trail that can help you prove you were part of the project if there is a dispute.
Frequently Asked Questions
Can I file a claim if the project is not finished yet?
Yes. You do not have to wait until the project is complete. If you have not been paid for work you completed or materials you delivered, you can file a claim when ready. The important date to file is measured from the last day you worked or delivered materials, not from the project completion date.
What if the bonding company says the bond amount is not enough to pay everyone?
If multiple people file claims and the total exceeds the bond amount, the bonding company will distribute the money proportionally — each claimant gets a percentage of what they are owed. This is rare on well-managed projects, but it can happen if the contractor's costs spiraled out of control.
Do I need a lawyer to file a claim against a payment bond?
No. You can file a claim yourself by sending a written notice and formal claim to the bonding company. However, if the bonding company denies your claim and you want to fight it, you will likely need a lawyer to pursue the case in court. Many construction attorneys work on contingency, meaning they take a percentage of what you recover instead of charging upfront fees.
What if I did not know the project had a payment bond?
You still have the right to file a claim. The contractor or the project owner should have told you about the bond, but if they did not, that does not take away your right to claim against it. If you cannot find the bonding company's information, contact the contractor's office or the project owner and ask for the bond details.
Can a contractor get out of paying by declaring bankruptcy?
The payment bond is separate from the contractor's bankruptcy. Even if the contractor files for bankruptcy, the bonding company is still required to pay valid claims against the bond. This is one of the main reasons payment bonds exist — to protect workers and suppliers when the contractor cannot pay.