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Bond Claim FAQs
It's common to have questions about bond claims. There are tons of rules and lots of confusion. Dig through some of the most frequently asked questions here.
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What is a Payment Bond Claim?
To protect contractors and suppliers on the job, prime contractors working on public projects are required to post a payment bond, which is a type of surety bond, under the state Little Miller Act. The payment bond is secured by a surety company, who must meet certain qualifications to guarantee they have the finances to secure the value of the project. When someone goes unpaid on the state, county or municipal project, they can make a claim for payment directly against the payment bond.
What’s the difference between a bond claim and a mechanics lien?
When you’re unpaid for materials or labor furnished to a private project, the law allows you to file a mechanics lien against that property. When working on a state, county or municipal project, of course, the government isn’t going to tolerate claims against its interest in the land. So, while a mechanics lien filing attaches to and is secured by the physical property, a bond claim attaches to and is secured by the payment bond. In a lot of ways, since properties can be over-leveraged and complex to foreclose upon, claims against payment bonds are cleaner, simpler and faster than mechanics lien claims.
What is the Bond Claim Process?
The bond claim process isn’t all that different from a typical mechanics lien process. For a full breakdown of the process: How Does the Payment [Surety] Bond Claim Process Work? However, here are the 5 basic steps that must be taken to make a proper bond claim and get you paid.
Video: How to Make a Payment Bond Claim
STEP 1: SEND A PRELIMINARY NOTICE
Many states require some sort of preliminary notice to be sent on public construction projects to secure the right to make a bond claim. It’s important to understand the notice and timing requirements of the state you are working in to ensure you’re protected in case of nonpayment. Some states that require preliminary notices have deadlines that run from the beginning of the project, while others merely require it before filing your claim. However, even if not required, it’s always a good idea to send one anyway.
STEP 2: “FILING” THE BOND CLAIM
The next step in the bond claim process, is, of course, the bond claim itself! This step is simple enough, but because of the complexity of the state law requirements and the chance of error, it’s worth using a reputable bond claim processing technology like Levelset to file the claim for you.
Filing is in quotations because a bond claim isn’t technically filed anywhere. Rather it needs to be sent (usually by certified mail) to any parties that are required by the state Little Miller Act. However, typically the GC, the contracting entity (“project owner”), and surety are required, in addition to any others.
The biggest mistake you can make when filing your bond claim, however, is not getting the claim filed on time. Each state has separate deadlines for when these bond claims are due. You must get the bond claim prepared correctly, and filed in the right place all before the state’s deadline. To determine the deadline to file a bond claim in your project’s state, consult Levelset’s industry-leading state bond claim resources.
STEP 3: REPLY TO BONDING COMPANY WITH BACKUP
After your bond claim is filed, you’ll be contacted by the payment bond surety to advise that a claim has been opened and to request you reply with backup materials about your claim and a sworn statement of claim. You’ll need to return this sworn statement and any backup documentation you have that provides support for your claim. Return these documents as quickly as possible to keep the claim moving along. Your claim will be delayed as long as you delay returning the materials.
STEP 4: FOLLOWUP WITH THE BONDING COMPANY
Once you’ve filed your bond claim and returned your bond claim sworn statement and information, the bonding company will contact their customer (i.e., the prime contractor). They will notify them of the claim and provide an opportunity to respond or contest the claim. Prime contractors will often delay responding to the bonding company, which delays your claim. A great way to keep the ball rolling is to follow up with the surety to pressure them to approve the claim.
STEP 5: FILE AN ENFORCEMENT ACTION
Hopefully, you’ve been paid and this step is unnecessary. But, if your bond claim is either denied or delayed unreasonably, it may be time to file a lawsuit against the surety to enforce your bond claim. An enforcement action is a full lawsuit; so consider this the final/last resort step.