Payment bonds are meant to be for the benefit of subcontractors and suppliers, generally speaking. Generally, construction bonds are piles of money put up by the general contractor or owner of a property. Subcontractors and suppliers may submit bond claims against the pile of money for lack of payment. This process avoids hold ups on work projects by mechanics liens and other tedious legal disputes. From this view, you can say that payment bonds really benefit all parties involved, but the main point of a payment bond is to ensure that subcontractors and suppliers get paid. Tennessee legislators amended the lien law to limit bond claims to the amount in the construction contract.
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TN Amendment Limits Bond Claim Amounts
On April 20, 2015, Tennessee Senate Bill 877 came into effect. This amendment is meant to simplify payment bonds posted in Tennessee. It specifically affects general contractors posting payment bonds for private construction projects.
Originally, the bond that a general contractor posted must pay out extras that are not contained in the contract but were authorized by the owner. The extras could not be more than 15% of the contract price. The recent amendment took this right out of the picture. No longer will payment bonds pay out for these extras.
This includes, but is not limited to: labor, materials, services, equipment, machinery, overhead, and profit costs that are not included in the contract but authorized by the owner throughout the project.
The Effects
This amendment changes the way subcontractors can fight for certain payments in private contracts. Payment bond claims are meant to ensure that subcontractors get paid, plain and simple. That should include the extra work authorized throughout the course of a construction project.
That being said, this amendment does not completely crush any shot at getting paid for this extra work. Despite not being able to make a bond claim for work that is not included within your contract, you still have another option. Mechanics liens are a perfect way to get paid. Know your state’s lien laws and get paid in no time.
