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Surety Bonds

Payment Bond Claims

by Michael O'Brien

Payment bond claims come into play if the contractor has defaulted or is unable to pay labor. The surety company is then responsible for paying such labor costs. When contractors are bonded, they must complete the job within the parameters of their contract. This includes what they had specified to pay the labor that goes into completing a job.

When Payment Bond Claims Are Made

In the case of default, payment bond claims are made to the surety company. The surety company will then send in investigators. Surety bond investigators must assess the situation and determine the correct course of action. If the contractor has indeed defaulted, the surety company must make whole the financial loss of the owner and workers as outlined in the contract.

Indemnity

To indemnify means to make whole. The purpose of surety bonds is for the owner, or person who hires a contractor, to be assured that he will be compensated in the event of default by the contractor. The surety company then has the right to be indemnified by the contractor if a loss occurs. Everyone wins, except the defaulting contractor.

If a contractor defaults, it could be devastating for the construction company. While they are no longer responsible to the owner for losses, they are responsible to the surety company. Surety companies take a risk to bond contractors. If there are losses, they will seek financial retribution. Basically, the need for payment bond claims is a bad thing.

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