Utah’s new law allows some state construction projects to proceed without payment bonds—introducing new credit considerations for suppliers and subcontractors.

For decades, suppliers serving the construction industry have viewed public construction projects as some of the more secure receivables in their portfolios. The reason is simple: payment bonds.

Because mechanics’ liens cannot be filed against public property, payment bonds have long functioned as the primary safeguard ensuring that companies providing labor, materials, and equipment are paid. If a contractor fails to pay its subcontractors or suppliers, the bond provides a direct claim against the surety company backing the project.

A recent legislative change in Utah may alter that dynamic.

House Bill 508 (HB 508), passed during the 2026 Utah legislative session, modifies bonding requirements on certain state construction projects administered by the Division of Facilities Construction and Management (DFCM). The new law allows the agency to waive payment and performance bond requirements on certain projects that historically would have required them.

For construction suppliers and credit professionals, the change introduces a critical question that may now need to be asked at the outset of every project: Does the project still have payment bond protection?

Understanding how HB 508 changes the traditional payment protection framework—and how credit departments should respond—will be important for companies supplying the construction industry in Utah.

Why Payment Bonds Matter for Construction Credit

Payment bonds are a cornerstone of risk management in public construction.

On private construction projects, suppliers and subcontractors often rely on mechanics’ liens to secure payment. When payment disputes arise, the lien provides a legal claim against the property itself, giving suppliers leverage to enforce payment.

Public projects operate differently. Government property cannot be subject to a lien, leaving subcontractors and suppliers without that traditional remedy. To address this gap, legislatures have historically required contractors performing public work to furnish payment bonds guaranteeing that those providing labor and materials will be paid.

If payment problems arise, unpaid parties can pursue a claim directly against the surety company that issued the bond.

For credit professionals, this structure provides several important advantages. Payment bonds create a secondary source of recovery backed by a financially stable surety. They also establish a clear legal pathway for pursuing unpaid invoices if a contractor fails to pay. As a result, suppliers have long been able to extend credit on public construction projects with a degree of confidence that may not exist on many private projects.

In many credit departments, public construction receivables have historically been treated as lower-risk accounts, precisely because of the protection payment bonds provide.

What Utah HB 508 Changes

HB 508 modifies this long-standing structure for certain state construction projects.

Under the new statute, the Utah Division of Facilities Construction and Management may elect not to require payment and performance bonds for certain construction contracts. Previously, bonding requirements were generally mandatory for projects administered by the agency.

The law does not eliminate bonds entirely. Instead, it allows DFCM to waive bonding requirements at its discretion, depending on the nature of the project or other considerations.

The practical effect is that some state construction projects may move forward without payment bond protection.

For suppliers and subcontractors, this represents a meaningful shift. Payment bonds have historically been the primary mechanism ensuring payment on public work. When that protection is absent, suppliers may find themselves extending credit without the safety net that has long accompanied public construction projects.

The Credit Risk Implications

From a credit management perspective, the absence of a payment bond significantly changes the risk profile of a project.

Without bond protection, suppliers lose the surety-backed guarantee that has traditionally provided a secondary source of payment. If a contractor fails to pay, there may no longer be a financially stable surety available to satisfy valid claims.

Legal remedies may also be more limited. Because mechanics’ liens cannot attach to public property, suppliers often lack the leverage that exists on private projects. In practical terms, recovery may depend largely on the financial condition of the contractor or subcontractor receiving the materials.

This dynamic places greater emphasis on contractor creditworthiness. Payment disputes, contractor insolvency, or project cash-flow issues can quickly cascade through the construction chain. Without bond protection, suppliers may bear a larger share of that financial risk.

While these risks will not materialize on every project, HB 508 means that suppliers can no longer assume that all public construction receivables carry the protection they historically enjoyed.

Credit Strategies in a Post–HB 508 Environment

In light of the new law, construction credit managers may want to adjust their practices when supplying materials to public projects in Utah.

The first and most important step is to verify whether a payment bond exists. Before extending credit, suppliers should confirm whether the project includes bond protection and request a copy of the bond if it does. Understanding the bond amount, the issuing surety, and the applicable claim procedures is essential to preserving potential rights.

When a project does not include a payment bond, credit departments may wish to evaluate the financial strength of the contractor more carefully. Reviewing payment history, credit references, and available financial information can help suppliers better understand the level of risk associated with extending credit.

Suppliers may also consider adjusting credit terms when bond protection is absent. Lower credit limits, shorter payment cycles, partial prepayment arrangements, or other credit controls may help limit exposure if payment disputes arise.

Finally, ongoing project monitoring can be an important risk management tool. Watching for delayed payments, changes in project funding, or signs of financial stress among contractors can allow credit managers to respond early—often before payment issues escalate into significant losses.

[POSSIBLE SIDEBAR: Five Questions Credit Managers Should Ask Before Supplying a Public Project]

1. Is there a payment bond on this project?
   Always request and review the bond before extending credit.
2. Who is the prime contractor?
   Assess the contractor’s reputation, financial strength, and payment history.
3. Who issued the bond?
   Confirm the surety company and verify the bond amount.
4. What are the bond claim deadlines?
   Missing notice or filing deadlines can eliminate bond rights.
5. How is the project funded?
   Understanding the project’s payment structure can help anticipate payment timing.]

Looking Ahead

HB 508 introduces new flexibility into Utah’s public construction procurement system. Whether bonding requirements will be waived frequently or only in limited circumstances remains to be seen.

Much will depend on how the Division of Facilities Construction and Management implements the law and how contractors structure their projects under the new framework.

What is clear, however, is that suppliers and credit professionals should approach public construction projects with a renewed focus on verifying payment protections before extending credit.

Payment bonds have long served as the safety net for construction receivables on public projects. Under Utah’s new law, confirming whether that safety net exists will become an increasingly important part of construction credit management.

Jason H. Robinson is a founding shareholder and director of Babcock Scott & Babcock, P.C., a Utah construction law firm. He has over twenty years of experience advising contractors, subcontractors, and suppliers on construction disputes, payment claims, and strategies to manage financial risk in construction projects. More information is available at babcockscott.com.