What is a Payment and Performance Bond?
During a construction project, a contract is created between a builder or contractor and a developer or property owner. The contract must contain many clauses including specifying what work is to be performed, how it is to be performed, and how it is to be paid for. While the contract should be detailed to protect everyone’s interests, you cannot guarantee neither party will breach the contract. As a result, in some construction contracts, bonds are required to ensure the contract is performed and the subcontractors paid.
A payment and performance bond is the term commonly used to refer to bonds purchased during construction projects. A payment bond may actually be a separate bond from a performance bond (and vice versa), although the two are often joined. An experienced Las Vegas business lawyer can provide assistance in determining if a payment and performance bond should be included in your contract.
An attorney can also assist you if you believe nonperformance or nonpayment has occurred and you have a bond protecting your interests. Pintar Albiston LLP has extensive experience with construction contracts, contract breaches, and issues arising from surety bonds. Call today to schedule a consultation and learn how we can assist you with all your real estate issues.
What is a Payment and Performance Bond?
A payment bond is a surety bond a contractor must post in order to guarantee material suppliers and subcontractors will be paid. Contractors are paid by developers or property owners and, in turn, pay subcontractors and suppliers.
If a subcontractor is not paid by the contractor, the subcontractor has the right to place a construction lien on the property while a supplier has the right to put a materialmen’s lien on the property. A payment bond ensures the contractor will make the required payments so no lien is placed on the improved property. If the contractor does not pay, the surety will cover damages. A surety must be licensed by the Insurance Department to write bonds.
Payment bonds are required under certain circumstances, including when a construction company enters into a contract with the federal government to do $30,000 or more of work. In contracts with developers and private property owners, the developer may request the contract purchase a payment bond.
A performance bond guarantees not payment of subcontractors, but instead satisfactory completion of a project. A performance bond may be required by a bank or an insurance company financing a project. Again, if performance is unsatisfactory, the surety ends up being responsible for paying out damages.
A payment and performance bond ensures an individual or entity contracting with a contractor does not face risk of financial loss for non-performance. Rather than going to court to sue a contractor for nonperformance or dealing with liens from subcontractors and suppliers, the person or entity entering into the construction project can count on the surety to cover losses.
To learn more about whether you need a payment and performance bond, contact Pintar Albiston LLP today to schedule your consultation with a Las Vegas real estate lawyer. We will be there during contractor negotiations and if a problem arises during your construction.