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Do You Know What You’re Asking For? Performance vs. Payment Bonds

Do you know the difference between a performance and payment bond? If you think they’re the same thing and you’re a Florida general contractor, you need to read this blog. Trust us, it’s for your own good!

Performance and payment bonds are two types of construction bonds put in place to ensure that certain contingencies are covered, but that’s where the similarity ends. Unfortunately, they’re often confused or, even worse, seen as two different names for the same instrument. They’re also commonly associated with public projects when they’re just as appropriate for private ones. 

No wonder there’s so much confusion! To make matters worse, project decisions that are based on misinformation can ruin you financially and professionally. In this blog, we set the record straight by defining performance and payment bonds, explaining their respective purposes, and showing how they can work together to benefit the project and protect your future in the industry.

What Is a Performance Bond?

With private projects, general contractors take out performance bonds from banks or insurance companies to assure the owner that they will perform in accordance with their contractual obligations. If you fail to carry out all aspects of the project (for example, you become insolvent), the owner can file a claim against the bond and the surety company will compensate them for any damages or losses caused by your nonperformance.

While payment bonds protect project owners, they don’t cover subcontractors or suppliers who may be affected by contractors who go bankrupt or don’t fulfill their duties for other reasons. That’s where payment bonds come in.

What Is a Payment Bond?

General contractors post payment bonds to help guarantee payment to their subcontractors and suppliers. Once issued, these sureties replace mechanic’s liens as payment remedies. In Florida, unpaid subcontractors and suppliers must file their claims against the bond instead of the property involved in the project.

Why Do You Need Both?

Performance and payment bonds work together to minimize losses when contractors cannot perform or pay their teams. The first can provide the owner with the financial means to complete the project while the other guarantees payment to all entities involved. While the inability to finish a contracted project is never a good thing, securing bonds for sufficient amounts can protect you from financial disaster as you get back on your feet.

Contact an Attorney

When there’s a lot of money at stake, ignorance is NOT bliss. At Portuondo Law, we make sure you know your rights and obligations under Florida surety bond law. Entering into a construction contract without input from an experienced attorney can cost you financially and even damage your future job prospects. Attorney Marisa Portuondo will review the project contract and give you the direction you need to ensure proper bond coverage, allowing you to embark on the project confidently and with peace of mind. Reach out to us to schedule a free case evaluation!

Disclaimer: The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters, and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send us any documents to review or confidential information until such time as an attorney-client relationship has been established.

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Portuondo Law Firm

Portuondo Law Firm provides custom services to South Florida businesses and residents. The Firm provides the personalized experience only a boutique firm can, without sacrificing quality.

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