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A Payment Bond is required by a project owner, known as an Obligee. They are normally requested by governments, local, state, and federal, governmental agencies, private project owners, and in the case of subcontractors, many prime contractors. The Obligee requires the bond because they want a guarantee that the suppliers, subcontractors, and laborers on a project will be paid in full and on time. An Obligee will also require a bond so they know a contractor is capable of paying for work and supplies on such a project because an unbiased entity has reviewed the contractor’s experience and financial standing and has concluded that contractor is fit to provide such payment.
In many cases, the Obligee will provide the bond form in a package with the contract. It is very important to review this document because not all surety bond forms are the same. The ProSure Group recommends, if possible, to use an AIA A312-2010 Payment Bond. The American Institute of Architects (AIA) collaborated with members from various industry groups including contractors, attorneys, surety bond producers, engineers, and insurance agents to provide this bond form as an industry standard, representing fair and balanced interests for all users.