A labour and material bond (also called a payment bond) is insurance that guarantees subcontractors and material suppliers will be paid for their work on a construction project, even if the main contractor fails to pay them. Municipalities often require these bonds on public construction projects to protect workers and suppliers from contractor bankruptcy or payment disputes. If the contractor defaults, the bonding company pays what's owed. This requirement ensures fair treatment of all parties contributing to public infrastructure projects and prevents liens being placed on municipal property when contractors fail to pay their obligations.