Preliminary Notices Become Even More Crucial as Payment Bond Thresholds Rise
When payment bond thresholds rise, it's even more important for subcontractors and suppliers to send preliminary notice and foster healthy payment chains.
Payment Bonds
A payment bond acts like an insurance policy, guaranteeing that contractors and other sub-tier parties on a project will receive payment. The bond also protects the property from mechanics lien filings. If a contractor or supplier doesn’t receive payment, they can file a bond claim, rather than a mechanics lien.
Typically, the prime contractor will purchase a bond from a bonding, Surety, or insurance company. Often, the lender will include a contract provision requiring the prime or general contractor to bond a project. In most cases, it is only the prime contractor who is required to obtain a payment bond.
Bonds are often required for public construction projects. For federal building projects, the Miller Act regulates the process of payment bonding for contractors. Many states utilize the Miller Act as a guideline for their own rules for payment bonds on government projects.
To maintain the right to file a bond claim, contractors need to meet filing deadlines and notice requirements specific to their project location. Improper or late bond claims may be challenged, delayed, or denied.
While a mechanics lien filing is secured by the physical property, a bond claim is secured by the payment bond. In a lot of ways, since the foreclosure process can be so cumbersome, claims against payment bonds can be cleaner, simpler, and faster than filing a mechanics lien claim.
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