Payment bonds benefit the subcontractors, laborers and suppliers of the principal or subcontractors of the principal.
Unfortunately, payment bond claims can be particularly detrimental to a fiscally sound contractor as, many times, the contractor does not understand there is an issue till a claim is declared. What’s more, it can also result in a surety paying for work or product twice.
So, how does this work? Let’s assume that a material provider of one of the contractor’s subcontractors was not paid, even though the contractor paid the subcontractor for the material. The materials vendor could possibly sue against the payment bond and the principal would be obliged to pay for the material once more just to satisfy the claim.
This is one reason why a contractor requires a bond from a subcontractor (to eliminate the double repayment risk).
Here’s a link to the youtube embed of a video on Payment Bond Claims.