Isn’t it comforting knowing that the project you are working on has a payment bond to make sure you get paid? Perhaps. But, getting the bonding company to pay your claim is often times difficult. Let’s review the steps to pursue payment.
First, get a copy of the bond. Ideally, you received a copy of the bond when you received the signed contracts from the general or the owner (you always get the signed contract, right?). But, chances are that the bond was not in place when the contracts were signed. If this is a public job, get a copy of the bond from the owner/governmental entity that is pursuing this project. If it’s a private job, pick your poison and ask for the bond from the owner or upstream contractor. Either should work, but we know that both will likely involve a heated conversation.
Second, review the bond. It may contain some time limits by which you should contact the bonding company about your claim. There is a real question about whether time limitations contained in bonds are enforceable under Nebraska law, but it’s always better to err on the side of caution and comply with those time limits.
Third, submit your claim to the bonding company. This preliminary claim serves as notice to the bonding company of your claim. This will likely result in the bonding company sending you a letter asking for all documentation that supports your claim, like pay applications, change orders, and the like.
Fourth, you wait. The bonding company will investigate the claim. I have yet to see the bonding company simply pay the claim; especially if the upstream contractor has taken the position that you failed to perform and should not be paid.
Fifth, file suit. If the bonding company rejects your claim, you will have to file suit against the upstream contractor, a/k/a the principal on the bond, and the bonding company. Although litigation may be costly, the upside to a bond claim is that you can recover your attorney’s fees if you prevail.
While a payment bond may provide some assurance of getting paid, you need to follow the proper steps to get the bonding company to pay you for your work.
Payment bonds are an important part of the construction process. Good advice, Craig, about making sure folks follow all of the steps required by the bond and the law.