Labour & Material Payment Bonds
L&M bonds guarantee that subcontractors and suppliers get paid for their work and materials on bonded projects. Owners require them to reduce lien pressure and protect the project.
What is a Labour & Material Payment Bond?
A labour and material payment bond (also called a payment bond) guarantees that the contractor will pay their subcontractors and suppliers for work performed and materials provided on the bonded project.
If the contractor fails to pay, qualifying claimants can make a claim against the bond to recover what they're owed.
This protection is important because construction liens can complicate project ownership and financing. When subs and suppliers have bond recourse, there's less pressure to file liens.
Key Difference from Performance Bonds
Performance Bond
Protects the project owner if work isn't completed
L&M Bond
Protects subcontractors and suppliers if they aren't paid
Who Can Make a Claim?
L&M bonds typically cover parties who supply labour and materials directly to the bonded project.
Subcontractors
Trades who perform work on the bonded project under contract with the principal.
Material Suppliers
Companies that supply materials incorporated into the bonded project.
Labour Providers
Workers and labour supplied directly to the bonded project.
Note: Coverage for second-tier claimants (suppliers to subcontractors, or sub-subcontractors) varies by bond wording. Always review the specific bond terms to understand who can claim.
Benefits of L&M Bonds
For Project Owners
- Reduces construction lien claims on the property
- Provides assurance that subs and suppliers will be paid
- Minimizes project disputes and disruptions
- Protects against work stoppages from unpaid trades
For Subcontractors & Suppliers
- Guarantees payment for qualifying work and materials
- Provides recourse if the contractor defaults on payment
- Offers an alternative to filing a construction lien
- Backed by the financial strength of the surety
Typical Coverage Requirements
L&M bond amounts are typically tied to the contract value. Requirements vary by project type and owner preferences.
Standard Public Sector
Most municipal and provincial contracts
Full Coverage
Some private and high-value projects
Usually Paired With Performance Bonds
L&M bonds are typically required alongside performance bonds. Together, they provide complete protection for the project owner, subcontractors, and suppliers.
The premium for both bonds is usually calculated together and factored into the contract price.
Learn about Performance BondsFrequently Asked Questions
What does a labour and material payment bond cover?
An L&M bond guarantees that subcontractors and suppliers who provide labour and materials to the bonded project will be paid. If the contractor fails to pay, the claimants can make a claim against the bond.
Who can make a claim on an L&M bond?
Typically, first-tier subcontractors and suppliers who have a direct contract with the bonded contractor can claim. Some bonds also cover second-tier claimants (subs of subs), but this varies by bond wording.
Why do owners want L&M bonds?
L&M bonds reduce lien pressure on the project. When subs and suppliers have bond protection, they're less likely to file construction liens against the property, which can complicate financing and ownership.
How much does an L&M bond typically cover?
L&M bonds are usually set at 50% of the contract value for public sector projects. Some private projects may require 100%. The amount is specified in the tender or contract documents.
Is the L&M bond separate from the performance bond?
Yes, they're separate bonds that serve different purposes. The performance bond protects the owner if the contractor doesn't complete the work. The L&M bond protects subs and suppliers if they don't get paid. They're often required together.
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