Home>Levelset Community>Legal Help>We received a performance bond and payment bond from a customer guaranteeing they will pay. However, if they do not do we file an insurance claim or lien?

We received a performance bond and payment bond from a customer guaranteeing they will pay. However, if they do not do we file an insurance claim or lien?

TexasBond Claims

AC Hero company is not credit worthy for a $98k job with us. They initially agreed to a joint check but now changed their minds and basically just provided an insurance policy. They sent us a performance bond and payment bond. We are the material supplier. I know these documents are supposed to guarantee us payment but if payment still falls through what would be our next step? An insurance claim instead of a lien? Can zlien help with the next steps if we have to pursue payment? If it helps, the sureties are through Philadelphia Indemnity Insurance Company and The Guarantee Company of North America USA

1 reply

Dec 12, 2018

That's a great question, and zlien has actually written on this topic before to give some insight into payment bonds: The Payment [Surety] Bond Claim Process: Requirements and Mistakes to Avoid. If this project is a public project, there will be specific rules as to how a bond claim must be made and what notice will be required, and you can find those rules here: Texas Public Project FAQs. Assuming this project is on privately owned land, though, the bond claim process might not be as cut and dry (and claimants typically won't be as familiar with the process). When a surety bond has been provided on a private project, the statutory rules applicable to public projects (as mentioned above) will go out the window for the most part. To recover against the bond, a claim must typically be made against the bond (by sending notice of the claim to the surety and/or the contractor, most typically) - and the text of the bond itself should clarify how claims against that bond should be made. The text of the bond itself should also clarify the timeframe during which claims must be made. But, essentially, bond claims typically work like this: If payment isn't made to a sub or supplier and their customer has a bond, that sub or supplier will make a claim to the surety and/or the customer. Then, the surety will evaluate the claim and either approve or deny the claim. If the sub or supplier remains unpaid, that sub or supplier is then able to file suit against the bond. So, payment bonds do work a bit like insurance when used in construction. Essentially, the payment bond ensures that there will be money to pay the subs and suppliers even if their customer can't make payment themselves. As far as a private bond claim itself - zlien does have a product for such a claim in Texas. If the project is public, zlien also has products available for public bond claims in Texas as well.

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