A payment bond is a type of surety bond issued to contractors which guarantee that all entities involved with the project will be paid. A payment surety bond is a legal contract, a type of bond, that guarantees certain employees, subcontractors, and suppliers are protected against non-payment.

The payment bond has a unique standing in the world of construction. It is different than other types of sureties because it ensures subcontractors and material suppliers are paid according to contract, which makes them critical for jobs on public property where mechanic’s liens (or other types of security interests) cannot be used.

How Does a Payment Bond Work?

The Cost of a Payment Bond depends on the type of the contract and risk of the contractor. Further, these are often priced together with a performance bond (see here for more on what a performance and payment bond costs). Typically, the payment bond cost is around 1-3% of the overall contractual amount. Thus, if the contract is $100,000, then the bond cost is $3,000.

Payment bonds ensure a contractor’s subcontractors, material suppliers, and laborers are protected. Without this protection these individuals could be left with unpaid wages or other debts if the project they were working on was cancelled for some reason. A payment bond protects anyone who has been involved in building something from being left without any money at all to pay their bills should things go wrong – but luckily it is not common that projects have to shut down completely.