Most bond forms in use today, including the standard form AIA A312-2010, contain express condition precedents that trigger a surety’s obligations under the bond. Under a performance bond, the bond obligee is required to provide formal notice to the surety that the principal has materially defaulted and that the surety must begin to perform under
An often-overlooked part of contract negotiations is the language included in the performance bond. While the owner or contractor (bond obligee) requires a performance bond and pays for it, negotiating efforts are typically spent on the main contract language itself rather than the bond. A common go-to performance bond form used in the construction industry…
When a party to a construction contract is faced with nonperformance of another party, often the desire to keep the project moving takes precedence in responding to the performance default. Problems arise, however, when the party who is owed the performance acts without first considering the terms and conditions of the written instruments governing the parties’ relationship on the project. For example, a construction contract may require the posting of payment and performance bonds guaranteeing, among other things, the performance of the bonded contract work by obligating the guarantor – a surety – to arrange for the completion of the work. Where a party fails to perform as promised, the party promised the performance should first review the language of both the construction agreement and any associated surety bonds before taking action, so as not to lose the benefits of the contract and/or bonds, as was the case in Arch Ins. Co. v. Graphic Builders, LLC, No. CV 19-12445-NMG, 2021 WL 534807 (D. Mass. Feb. 12, 2021).
Continue Reading Obtaining the Benefits of a Performance Bond: Tread Carefully