It is crucial to review the payment bond agreement and related documents to determine exactly what the repayment bond covers. This is true also for exclusive jobs (the law has developed around just what is covered under Federal and State work).
The following are the 4 major classifications covered in a payment bond claim:
- Wages. Consists of contributions to pension funds, yet does not consist of tax obligations.
- Materials. Must be used in the job.
- Parts and Repair work. Can be covered if utilized only for the job.
- Equipment and tools. Lease and rental value are normally covered, yet acquisition and financings are not.
The good news is, valid repayment bond cases are cleared up quite promptly. The surety is only accountable for the penal sum of the bond so once that amount is exhausted their obligation stops.
It’s in all party’s best interest to obtain a reasonable and fast resolution for a repayment bond case. One of the blunders that professionals make is waiting to get the surety involved or withholding info. Remember, surety bonds require indemnification from the service provider’s company and usually personal indemnification from the owners, their partners and others. Because of this, it is in the best interest of the contractor to partner with the surety to limit the loss.
One tip: keep in mind that, unlike insurance coverage, bonds are composed on a no reduction basis and you normally compensate the surety for all reductions – including attorney fees, etc.