Using the Retrospectroscope to draft your contract

NOVEMBER 8, 2017 - construction law

Payment and Performance Bonds perform a function on construction jobs similar (but different than) an insurance policy. A payment bond is an arrangement where the surety agrees to make payment to a claimant if the holder of the bond does not make payment under a construction contract. A performance bond is an arrangement where the surety agrees to step in and pay for performance of the contract if the holder of the bond fails to perform under the contract.

The main difference between a payment or performance bond and an insurance policy is that if there is a loss, the surety has the right to pursue the bond holder for the total amount of the money paid out on the bond, plus attorney’s fees and expenses.  Like insurance, a premium is paid by the holder of the bond or insurance policy to maintain coverage. However, in the event of loss under an insurance policy, the insurance company does not have a right to seek recovery of the money paid under the policy from the policy holder.

As a subcontractor working on private projects, if a payment bond has been obtained by the general contractor, it can act as an alternate source of payment to filing and pursuing a materialmen lien. On public works projects, where the filing of liens is not allowed, a payment bond will be required as a matter of law for any project with a value over $100,000. This payment bond is required to ensure that subcontractors on public works projects are protected and have source of payment.

Bonds can also be used to release liens on residential or commercial projects. Lien release bonds act to remove the claim of lien from the property.

On private projects, the easiest way to determine if a payment bond has been obtained on the job is to ask the general contractor in writing. On publics works projects, payment bond information should be listed on the project information board. As a subcontractor or contractor who has filed a lien, you should receive notice of the filing of a lien release bond. A search of the Georgia Superior Court Clerks Cooperative Authority for the property in question will show whether a lien release bond has been obtained.

Carson Law helps construction firms in all trades deal with the legal complexities of running a small business and a construction project in the building industry. This blog is dedicated to providing straightforward legal information designed to assist the construction practitioner with legal issues they are most likely to face on a construction job. Construction law and litigation is our focus, helping people is our passion. See; e-mail or call 678 205 1537.