The phone call came three months after the hospital project wrapped up. The GC had filed for bankruptcy, and the electrical subcontractor was still owed $127,000.
His first question: "Is there a payment bond?"
There was. And because he knew how to file a bond claim, he recovered every dollar.
Payment bonds are one of the most powerful protections subcontractors have on public projects and many large private projects. But too many contractors don't understand how to use them.
Let me fix that.
What Is a Payment Bond?
A payment bond is a three-party agreement among a principal (the GC or prime contractor), an obligee (usually the owner), and a surety (the bonding company). The bond guarantees that subcontractors and suppliers will be paid for their work, even if the GC defaults.
On federal projects, payment bonds are required by the Miller Act. On state and local public projects, similar requirements exist under "Little Miller Acts." Many large private projects also require payment bonds.
The key point: if there's a payment bond on your project, you have security beyond just the GC's ability to pay.
Do You Have Bond Rights?
Before you can file a claim, you need to know if bond coverage exists for your tier:
Federal Projects (Miller Act)
State Public Projects
Coverage varies by state. Some cover only first tier, others cover second tier. Check your state's Little Miller Act.
Private Projects
Bond requirements depend on the contract. Read the prime contract or bond form to understand coverage.
Finding the Bond
You can't file a claim against a bond you can't find. Here's how to locate it:
Ask the GC
The GC is often required to provide bond information upon request. They may be reluctant if disputes exist.
Ask the Owner
The owner (or awarding authority on public projects) should have copies of all bonds.
Public Records
For public projects, bonds are often public records available through freedom of information requests.
During Project Start
Smart contractors get bond information at project start, before any disputes arise. Make this standard practice.
Notice Requirements
Most payment bonds have strict notice requirements. Miss these deadlines, and you lose your claim.
Miller Act (Federal) Requirements
**First-tier subcontractors:** No preliminary notice required. Must file suit within one year after last labor/materials furnished.
**Second-tier subcontractors:** Must give written notice to the GC within 90 days of last labor/materials furnished. Must file suit within one year.
State Bond Requirements
State requirements vary widely. Common patterns:
Private Bond Requirements
Private bonds often have their own notice requirements specified in the bond form. Read the bond carefully.
What the Notice Must Include
Bond notices typically must include:
Use certified mail with return receipt. Document everything.
Filing the Claim
Once you've sent proper notices, the claim process typically works like this:
Step 1: Submit Claim to Surety
Send a formal claim to the surety company with:
Step 2: Surety Investigation
The surety will investigate. They'll ask the GC for their side, review documentation, and evaluate the claim.
Step 3: Negotiation
Many claims are resolved through negotiation. The surety may pay the full amount, offer a settlement, or deny the claim.
Step 4: Litigation
If negotiation fails, you'll need to file a lawsuit against the bond within the statute of limitations.
Common Bond Claim Issues
Claim Amount Disputes
The surety may dispute how much is owed. Have detailed documentation of work performed and amounts billed.
Scope Disputes
If there are disputes about whether work was within scope, the surety may defer to resolution of those disputes.
Quality Disputes
If the GC claims your work was defective, the surety may offset their losses against your claim.
Timing Issues
Late notices or claims filed after deadlines are denied. There's rarely forgiveness for missed deadlines.
Multiple Claims
When multiple subcontractors make claims, the bond amount may not cover everyone. Claims are typically paid in order received.
Bond Amount Limitations
Payment bonds have limits. On a $10 million project, the payment bond might be $10 million. If claims exceed the bond amount:
This is why filing promptly matters — you want to be early in line.
Working with the Surety
Sureties aren't your enemy. They want to resolve legitimate claims efficiently. To work effectively with them:
Be Professional
Present your claim clearly and professionally. Hostility doesn't help.
Provide Complete Documentation
Make it easy for them to evaluate your claim. Gaps in documentation slow everything down.
Respond Promptly
When the surety asks for additional information, provide it quickly.
Be Reasonable
If there are legitimate offsets or disputes, acknowledging them makes you more credible.
Know Your Rights
Don't accept unreasonable delays or denials. You have legal remedies if the surety doesn't act in good faith.
When to Involve an Attorney
Consider legal help when:
Complex Claims
Large amounts, multiple parties, or complicated factual disputes.
Surety Resistance
The surety is unresponsive or denying what seems like a valid claim.
Deadline Pressure
You're approaching the lawsuit deadline and haven't resolved the claim.
GC Bankruptcy
Bankruptcy adds complications that benefit from legal expertise.
First Bond Claim
If you've never filed a bond claim before, a brief attorney consultation is worthwhile.
Differences from Mechanics Liens
Bond claims and mechanics liens are different remedies:
| Factor | Payment Bond | Mechanics Lien |
|--------|-------------|----------------|
| Security | Surety's assets | Real property |
| Private projects | Only if bond exists | Generally available |
| Public projects | Usually required | Not available |
| Filing location | With surety | County recorder |
| Priority | First come, first served | Complex priority rules |
On private projects, you may have both remedies available. On public projects, the bond claim is usually your only option.
Best Practices for Bond Protection
To maximize your bond claim success:
Get Bond Info at Project Start
Don't wait until there's a problem. Get bond information during project setup.
Track Your Deadlines
Different states, different projects, different bonds — different deadlines. Track them all.
Send Preliminary Notices
Even when not strictly required, notices preserve your rights and create a record.
Document Everything
Your claim is only as strong as your documentation.
File Early
Don't wait until the deadline is close. Early claims have better outcomes.
Know Your Tier
Understand whether you're first-tier, second-tier, or lower. Your rights depend on it.
SubPaid tracks bond information and claim deadlines automatically, alerting you when action is needed. It's like having a bond specialist watching every project.
Frequently Asked Questions
Can the GC retaliate against me for filing a bond claim?
The GC may not be happy, but the bond exists precisely for this situation. Don't let fear of retaliation prevent you from exercising legitimate rights.
What if the GC disputes my claim?
Document your position thoroughly. The surety will investigate both sides. If the dispute can't be resolved, litigation may be necessary.
How long does a bond claim take?
Simple claims may resolve in 30-60 days. Complex claims with disputes can take months or years if litigation is required.
Do I still have lien rights if there's a bond?
On private projects, possibly yes. On public projects, generally no — that's why the bond exists.
Can I file a bond claim if I haven't been fully paid but the project isn't complete?
Usually yes. Your right to claim accrues when payment is due, not when the project ends.