Construction Bonds – Requirements for Conditional Payment Bonds
What is a conditional payment bond?
A conditional payment bond is an instrument under which the obligation of the surety to make payment to a claimant is dependent on certain conditions being satisfied. If the conditions are not satisfied, then the claimant has a lien on the improved real property, as opposed to a bond claim.
Under Florida Statutes Section 713.245(1), if the contractor’s written contractual obligation to pay lienors is expressly conditioned upon and limited to the payments made by the owner to the contractor (i.e., a valid “pay-when-paid” clause is in the contract), then the duty of the surety to pay lienors will be coextensive with the duty of the contractor to pay. However, the following additional conditions must be satisfied:
(a) The bond is listed in the notice of commencement for the project as a conditional payment bond and is recorded together with the notice of commencement for the project prior to commencement of the project.
(b) The words “conditional payment bond” are contained in the title of the bond at the top of the front page.
(c) The bond contains on the front page, in at least 10-point type, the statement: THIS BOND ONLY COVERS CLAIMS OF SUBCONTRACTORS, SUB-SUBCONTRACTORS, SUPPLIERS, AND LABORERS TO THE EXTENT THE CONTRACTOR HAS BEEN PAID FOR THE LABOR, SERVICES, OR MATERIALS PROVIDED BY SUCH PERSONS. THIS BOND DOES NOT PRECLUDE YOU FROM SERVING A NOTICE TO OWNER OR FILING A CLAIM OF LIEN ON THIS PROJECT.
In short, if the contract contains a valid “pay-when-paid” clause, the payment bond meets all of the other requirements above and the contractor has been paid but has not made payment to the claimant, then the surety has an obligation to pay the claimant under the conditional payment bond. If any of these requirements have not been met, then the claimant has a lien against the improved real property.