Labour and Material Payment Bonds

By on Oct 25, 2011

 
Construction is becoming an increasingly competitive industry. As budgets for the work decrease in size the expectations and requirement for the work to be done quickly and well become greater. This means that work is being done at a faster pace and often with smaller profit margins. Getting paid for all of the work your company does and everything your company supplies is increasingly important in this environment.
 
Working with a company that has a good payment record and solid credit history can help. Another method of ensuring you are paid is the Labour and Material Payment Bond. This article provides an overview of what a Labour and Material Payment Bond is and some basic steps to take to help ensure that you can take advantage of the Labour and Material Payment Bond to ensure payment. It is not to be relied on as legal advice.
 

What is a Labour and Material Payment Bond?

 
It is not uncommon in the construction industry, especially on a commercial construction project, for an owner to require a general contractor to post a Labour and Material Payment Bond. The Labour and Material Payment Bond is a type of insurance that is used to guarantee that subcontractors and suppliers are paid for the work and material they supply on the job. The company that provides the bond, that in effect insures payment for the work and materials, is called the surety.

From the perspective of a subcontractor or supplier, the bond provides protection to them that they will be paid. From the perspective of the owner and the general contractor the bond can reduce administrative burden and can help build their image as being a good organization with whom to work and do business.
 

Are you entitled to see a Labour and Material Payment Bond?

 
Usually, the General Contractor will be the principal on the bond and will enter into it for the benefit of the owner. Subcontractors and suppliers would be claimants under the bond. The principal and the owner should normally receive a copy of the bond when it is entered into. Subcontractors and suppliers are generally not provided with a copy of the Labour and Material Bond for a project unless they ask for it. That does not mean that they are not entitled to see the bond. They are entitled to see the bond by virtue of the Ontario Construction Lien Act, section 39 which provides rights to information including a right to see a copy of the Labour and Material Payment Bond. It is important that subcontractors or suppliers request the Labour and Material Payment Bond before it is too late to make a claim under the bond.
 

When and why should you request a copy of a Labour and Material Payment Bond?

 
Labour and Material Payment Bonds set out the method and conditions for making a claim under the bond. They identify the information you are required to provide when making a claim, who the information has to be sent to for a valid claim to be made, how to send and they set out deadlines for making a claim under the bond. It is a good practice to request a copy of the Labour and Material Payment Bond at the time the contract is awarded.

The bond should be reviewed when it is received and the surety should be noted as well as the deadlines for claiming, who is to receive notice of the claim and how notice is to be given. If all goes well and payments are made to you in a timely way, you will not need to look at the bond again. If payments start to slow down, then check the bond again. Consider preparing and sending out the proper notices in order to make a claim. If you are not sure you understand what you need to do to make a claim, consult with a construction lawyer who can assist you with that.

The article posted here is for general information. We hope you find it useful. For advice specific to your circumstances you should consult a lawyer. We would be pleased to speak with you if you have questions about our services or need the assistance of a lawyer.