A payment bond covers 100% of the contract value of $3,000,000. A subcontractor is owed $85,000 but hasn't been paid. What is the maximum amount the subcontractor can claim against the payment bond?
Correct Answer
A) $85,000
The subcontractor can claim the actual amount owed ($85,000) against the payment bond, subject to the bond's total coverage limit and proper claim procedures.
Why This Is the Correct Answer
A payment bond allows subcontractors to claim the actual amount owed to them, up to the bond's coverage limit. Since the subcontractor is owed $85,000 and the payment bond covers the full $3,000,000 contract value, the subcontractor can claim the entire $85,000 owed. Payment bonds protect against non-payment by allowing claims for actual unpaid amounts, not reduced percentages or arbitrary limits.
Why the Other Options Are Wrong
Option B: $42,500
This represents 50% of the amount owed ($85,000 ÷ 2 = $42,500), but payment bonds don't automatically reduce claims by half. Subcontractors can claim the full amount owed to them, subject to proper procedures and the bond's total coverage limit. There's no standard percentage reduction applied to legitimate payment bond claims.
Option C: $3,000,000
While the payment bond does cover the full $3,000,000 contract value, this doesn't mean the subcontractor can claim the entire bond amount. Payment bond claims are limited to the actual amount owed to the claimant. The subcontractor can only claim what they're legitimately owed ($85,000), not the bond's total coverage.
Option D: $1,500,000
This represents 50% of the total bond coverage ($3,000,000 ÷ 2 = $1,500,000), but payment bonds don't work this way. Subcontractors cannot claim arbitrary percentages of the total bond amount. Claims must be based on actual unpaid amounts owed for work performed or materials supplied under the contract.
Memory Technique
Payment bonds pay what's OWED: 'Only What's Earned & Due' - subcontractors get exactly what they're owed, not more, not less.
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