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ABOUT PAYMENT BONDS
A Financial Guarantee
Payment Bonds are also known as a Labor and Material Bond, a payment bond guarantees that the contractor will fulfill all financial obligations (material, labor, subcontract, etc.) relating to the contract. If the contractor fails to pay subcontractors and suppliers for their work, the payment bond amount may be used as reimbursement to these parties.
The payment bond forms a three-way contract between the owner, the contractor and the surety, to make sure that all subcontractors, laborers, and material suppliers will be paid leaving the project lien free.