Colorado Payment Bonds: Protect Subs & Suppliers
Payment bonds guarantee that subcontractors, suppliers, and laborers get paid on construction projects, even if the general contractor runs into trouble. Required on all Colorado public projects over $50,000, payment bonds are the financial safety net for everyone working beneath the GC. Here's everything you need to know.
See Payment Bond Protection in Action
Real scenarios that show exactly when and how payment bonds protect you and your business.
The Electrical Sub Who Got Stiffed
Tamara's electrical company completed $160,000 in work on a bonded school renovation in Larimer County. The general contractor stopped paying after the first $120,000, blaming cash flow problems on another project. Tamara filed a verified statement with the school district within the 90-day window and recovered the full $40,000 owed through the payment bond. Instead of months of litigation, the surety investigated and paid the claim, keeping Tamara's business solvent.
The Material Supplier Left Holding the Bag
Kevin's lumber company delivered $28,000 in materials to a Fort Collins city infrastructure project. The GC filed for bankruptcy before paying any suppliers. Without a payment bond, Kevin would have had no recourse since you can't place a mechanic's lien on public property. Kevin filed a claim against the payment bond and recovered the full $28,000. Without that bond, his small business would have absorbed a devastating loss.
The Cascading GC Failure
A general contractor on a $4.2 million county road project ran into financial trouble and stopped paying everyone, subcontractors, equipment rental companies, and material suppliers. Seven different businesses filed claims against the payment bond totaling $380,000. The surety paid all valid claims in full, protecting seven small businesses from catastrophic losses. Without the required payment bond, those businesses would have faced years of bankruptcy proceedings to recover pennies on the dollar.
Everything You Need to Know About Payment Bonds
The complete picture: what's covered, what's not, and how to decide if you need it.
Payment Bond (Plain English)
A payment bond guarantees that a general contractor will pay all subcontractors, suppliers, and laborers on a construction project. If the contractor doesn't pay, the surety company steps in to cover those obligations. Think of it as a financial safety net for everyone working beneath the GC. On public projects, where you can't file a mechanic's lien against government property, the payment bond is your primary protection. It's purchased by the GC, required by the project owner, but it protects the subs and suppliers doing the actual work.
Key Details and Fine Print
Colorado's Little Miller Act (C.R.S. 38-26-106) requires payment bonds on all public construction projects exceeding $50,000. The bond must equal 100% of the contract price. It protects first-tier subcontractors, second-tier subcontractors, material suppliers, laborers, and equipment providers. Claims must be filed within 90 days of the last date labor or materials were furnished, followed by a six-month window to file suit. Both a performance bond and payment bond are required on qualifying projects, and they're typically issued together as a P&P package.
Payment Bond vs. Performance Bond
A payment bond is NOT the same as a performance bond. The payment bond protects the parties below the contractor (subcontractors, suppliers, laborers) by guaranteeing they'll get paid. The performance bond protects the party above the contractor (the project owner) by guaranteeing the work gets completed. Colorado requires both on public projects over $50,000. They're almost always purchased together as a bundled P&P package with combined pricing.
Who Needs a Payment Bond?
You typically need this if:
- You're a general contractor bidding on public construction projects over $50,000 in Colorado
- You're working on federal construction projects over $150,000
- A private project owner or lender requires bonding to protect against mechanic's lien exposure
You might skip this if:
- You work exclusively on small private projects with no bonding requirements
- You're a subcontractor (the GC purchases the payment bond, not you)
Limits, Options, and Add-Ons
Payment bond amounts equal 100% of the contract value on public projects. They're almost always bundled with performance bonds into a combined P&P package. The payment bond typically adds 20-40% to the performance bond premium, and some sureties include it at no additional cost when bundled. Combined P&P rates range from 0.5% to 3.5% of contract value, with rates decreasing as project size increases. Your specific rate depends on credit, financials, experience, and claims history.
What's NOT Covered by a Payment Bond
This coverage does NOT cover:
- Project completion guarantees (that's the performance bond)
- Third-tier or lower subcontractors who lack a direct contractual relationship with the GC or a first-tier sub
- Claims filed after the 90-day deadline (missing the window forfeits your rights entirely)
- Disputes unrelated to nonpayment (quality disagreements, scope changes, contract interpretations)
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From Nonpayment to Resolution: The Payment Bond Process
Understanding exactly what happens when you file a payment bond claim, from start to finish.
The Claims Process
- Nonpayment Occurs: A subcontractor, supplier, or laborer performs work or delivers materials on a bonded project and doesn't receive payment from the general contractor.
- File Verified Statement: Within 90 days of the last date you furnished labor or materials, file a verified statement of the amount due with the public entity that awarded the contract. Send a copy to the general contractor via certified mail.
- Notify the Surety: Contact the surety company directly to initiate the claims investigation. This puts them on notice and often accelerates resolution.
- Investigation: The surety reviews the contract, payment records, and circumstances. Many claims are resolved through negotiation once the surety applies leverage on the contractor.
- Resolution or Litigation: If resolved, the surety pays the claim. If not, you have six months from your verified statement filing to commence a lawsuit against the bond.
What You Pay
Payment bonds are almost always bundled with performance bonds into a combined P&P package. You typically won't pay separately for a standalone payment bond. Combined P&P premiums range from 0.5% to 3.5% of contract value depending on project size and your qualifications. A $500,000 project might cost $7,500-$12,500 for the full P&P package. Rates decrease as contract size increases. Your specific rate depends on credit score, business financial strength, construction experience, and claims history.
Timeline
For contractors with established bonding relationships, a P&P bond package can be issued in 3-5 business days. First-time applicants or complex situations should plan for 5-7 business days. The fastest way to speed up the process: maintain an ongoing bonding relationship, keep financial statements current, and respond promptly to surety requests for additional information.
What a Payment Bond Actually Costs vs. What You Risk
Understanding the real financial impact: what you pay for coverage vs. what you risk without it.
Small Municipal Project
Annual Coverage Cost: $2,500-$3,500 (P&P bundle)
Scenario: A contractor bids on a $100,000 public building renovation with three subcontractors.
Without Coverage: Cannot bid on the project. Subcontractors have no payment protection.
With Coverage: $2,500-$3,500 bundled premium ensures the project and protects every sub and supplier.
Protection Value: $100,000 project access plus guaranteed payment for all parties.
Mid-Size Road Project
Annual Coverage Cost: $7,500-$12,500 (P&P bundle)
Scenario: A GC wins a $500,000 county road improvement with ten subcontractors and multiple material suppliers.
Without Coverage: Disqualified from public work. Subs and suppliers have zero recourse on public property.
With Coverage: $7,500-$12,500 premium protects every sub and supplier on the project.
Protection Value: Hundreds of thousands in payment guarantees for the entire project supply chain.
Large School District Project
Annual Coverage Cost: $37,500-$75,000 (P&P bundle)
Scenario: A GC takes on a $5,000,000 school construction project with dozens of subs and suppliers.
Without Coverage: Cannot participate. If the GC defaults, dozens of small businesses face catastrophic losses.
With Coverage: $37,500-$75,000 premium guarantees payment for every worker, sub, and supplier on the project.
Protection Value: $5,000,000 in payment protection for the entire project ecosystem.
The Economic Reality
For most general contractors, the payment bond adds a nominal amount to the performance bond premium, often just 20-40% more or sometimes nothing at all when bundled. Without a payment bond, you can't bid on any public project over $50,000 in Colorado. One missed project opportunity dwarfs years of bond premiums. The math is simple.
4 Costly Payment Bond Mistakes to Avoid
Learn from others' mistakes, avoid these common errors that can leave you unprotected when you need coverage most.
Missing the 90-Day Filing Deadline
Colorado's payment bond claim deadline is strict: 90 days from the last date you furnished labor or materials. There is no grace period. Subcontractors who wait too long, hoping the GC will eventually pay, lose their claim rights entirely. Once the 90-day window closes, your payment bond protection is gone forever. Instead, file your verified statement as soon as nonpayment becomes clear, well within the deadline.
Not Verifying the Bond Exists
Subcontractors sometimes assume a payment bond is in place on public projects without confirming it. While bonds are legally required over $50,000, verification protects you. If you discover there's no bond after nonpayment occurs, your options are severely limited on public property. Instead, request proof of the payment bond before you start work on any project.
Poor Documentation of Work Performed
When a payment bond claim goes to investigation, the surety needs clear evidence of what you furnished and what you're owed. Subcontractors with incomplete records, missing invoices, or no delivery receipts face delays and potential claim denials. Weak documentation turns a straightforward claim into a contested dispute. Instead, keep detailed records of every invoice, delivery ticket, and payment communication from day one.
GCs Floating Lien Payoffs Instead of Paying Subs Promptly
General contractors sometimes stretch payment timelines to manage cash flow across multiple projects. This is the most common trigger for payment bond claims, and every claim damages your bonding capacity and future premiums. One payment bond claim can reduce your bonding limits across all projects. Instead, pay subcontractors on time. If cash flow is tight, communicate early with your subs and your bonding agent.
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