On a private construction project, if a subcontractor or supplier doesn’t receive payment, they can file a mechanics lien on the property. But when a payment bond is present, that bond effectively takes the place of the property for the purpose of making a non-payment claim.

Instead, anyone who isn’t paid will need to file a claim with the surety, rather than securing their interest with the property itself.

This is why payment bonds are typically required on public projects, whether state or federal. The government doesn’t allow liens to be placed upon their own land. So to ensure that everyone on the job gets paid, they require the general contractor to purchase a payment bond.

You can think of a construction payment bond as an insurance policy in case the contractor cannot or will not pay the other parties on a construction project. The bond represents a “pile of money” that parties may make claims for payment against for payment of money they’ve earned on the project.