Who claims in the case of a labour and materials payment bond?
Claims filed under labour and materials payment bonds are easier to manage than those under performance bonds. They are, nonetheless, the main source of losses for bonding companies in the event of a contractor's default caused by the insolvency of the bonded business.
Claims received from unpaid subcontractors and suppliers are analyzed according to the terms and conditions of the labour and materials payment bond. The following are the main considerations:
- Does the subcontractor or the supplier meet the definition of a claimant based on that individual's contractual ties to the principal?
- What is the precise amount due to the claimant with respect to the bonded contract, and is the claim adequately documented?
- Does the cumulative amount due to the claimants exceed the amount of the labour and materials payment bond?
- Have the notices and time limits prescribed by the bond been respected?
If the prerequisite conditions are met and there is no viable contestation, the bonding company must pay the claimants to honour the labour and materials payment bond. However, it must be noted that its maximum liability is limited to the amount of the bond, which can result in partial payments prorated based on the total amount of the bond rather than the full amounts claimed and payable under the bond.