A payment bond is a three-party guarantee. The contractor (principal) buys it from a surety for the benefit of the owner (obligee) and the people who supply labor and materials. If the contractor doesn’t pay, qualifying claimants can recover from the surety up to the bond amount, called the penal sum.
On federal work over $150,000, the Miller Act requires payment bonds, and most states have “Little Miller Acts” for state and local public work. Because you generally can’t lien public property, the payment bond is the lower tiers’ main protection there. On private work, owners and lenders sometimes require one, and in some states a bond can stand in for lien rights.
Claim rules are strict. Under the Miller Act, second-tier claimants with no contract with the prime must give written notice within 90 days of their last labor or materials, and suit must be filed within one year. State statutes set their own deadlines.
Why it matters
For GCs, a bond claim means a call from the surety, who will expect reimbursement under the indemnity agreement. For subs, knowing the bond exists can be the difference between getting paid and not.
Worked example
Illustrative: a $10M public school job carries a payment bond at 100% of the contract, so a $10M penal sum. A second-tier supplier owed $85,000 serves written notice 70 days after its last delivery, inside the 90-day window, then claims against the bond.
Common mistakes
- Assuming private lien rules apply on public work.
- Counting the notice window from the invoice date instead of last furnishing.
How os.construction handles it
We’re building compliance records that keep bond details, notice dates and sub payment status on one job record. It’s in development.