Construction Payment Law and Legal Definition

There are various payment methods used in construction. One tool used to secure payment is the performance bond. A performance bond is a written form of security from a surety (bonding) company to the owner, on behalf of an acceptable prime or main contractor or subcontractor, guaranteeing payment to the owner in the event the contractor fails to perform all labor, materials, equipment, or services in accordance with the contract the face value of the performance bond. The surety companies generally reserve the right to have the original prime or main or subcontractor remedy any claims before paying on the bond or hiring other contractors.

A mechanic's lien is another tool used to secure payment. There are two kinds of lien; particular and general. When a person claims a right to retain property, due to money or labor invested in that property, it is a particular lien.

Liens may arise in three ways:

  1. By express contract;
  2. From implied contract, as from general or particular usage of trade;
  3. By legal relation between the parties, such as when goods are delivered to a tradesman or any other, to apply his labor to, he is entitled to detain those goods until he is paid for such labor.