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 material 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 bond company.
From the perspective of a subcontractor or supplier, this type of bond provides protection to them that they will be paid. From the perspective of the owner, the bond provides protection that monies released to the General Contractor are in fact paid to the relevant suppliers and subcontractors.
Are subcontractors entitled to see a project’s 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 General Contractor will supply the original bond to the owner at the start of the project.
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.
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 time limitations to making a claim, the information you are required to provide, the parties that need to be notified and how they should be notified. On top of that, the Labour and Material Payment Bond is one of the documents required when making a bond claim.
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 the project is progressing well and payments are made to you in a timely manner, you will not need to look at the bond again. If payments start to slow down, then 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 your surety bond broker who can assist you with that.
3 things to know about claiming under a typical Labour and Material Payment Bond
- The claim has to be made within 120 days of your last invoice or date of services rendered, OR the last day you were on site.
- A “notice of claim” must be sent by way of registered mail to the bond company, the general contractor, and the owner.
- The claim must be substantiated by your records. You will need to include the following with your “Notice of Claim”:
– Copy of the written contract
– Copies of all invoices
– Proof of payment received
– The exact bond amount outstanding including HST
– Copy of the labour and material bond
You can refer to the Surety Association of Canada’s article on making a claim for more detailed information.
What is the Notice of Claim?
The notice of claim is a document that outlines all of the particulars relevant to your claim under the labour & material bond. It includes the parties involved, the details of the project in question, the amounts that are being claimed as well as the documents that are included in your claim submission. It lays out the dates during which services were supplied and should clearly outline your position so that it’s easy for the surety companies claims department to understand. It is important to remember that the notice of claim must be sent by way of registered mail to the General contractor, the owner as well as the bond company.