As a review, most significant construction projects in Florida will involve surety bonds.
Usually a contractor or subcontractor will obtain a bond through an insurance company or bank to give either to the general contractor or to the owner.
If the firm which bought the bond does not fulfill their end of a construction deal, then the general contractor or owner can make a claim on the bond, demanding payment from the institution which issued it.
The terms of the bond may also allow the institution to take over the project and fulfill outstanding obligations.
A payment bond is specific to the construction industry. The terms of the bond can vary depending on both who is involved and the project.
Basically, a contractor which buys a payment bond guarantees that it will promptly pay any subcontractors they hire, as well as their material suppliers and their own workers.
While contractors should be paying their obligations, the bond offers a project owner, or general contractor, some additional security.
After all, if the contractor does not pay, for whatever reason, those who have outstanding bills may legally pursue the project owner or general contractor through mechanic’s liens or other processes.
The beneficiary of a bond should review the terms of their payment bond and consider filing a claim should they become aware that their contractor is not paying their suppliers, subcontractors or employees.
Pursuing a payment bond claim can be legally complex
Financial institutions sell payment bonds with the understanding that they will not have to pay a claim on them.
Bonds are usually sold for a fraction of their value, so if the institution must pay, it loses money. Likewise, the contractor which bought the bond may have a vested interest in avoiding a bond claim. Ultimately, the institution will hold the contractor which failed to pay responsible.
For this reason, payment bond claims involving construction project can be contentious. The result will depend a lot on the terms of the bond and underlying contract, the facts, and applicable Florida laws.
