Performance Bonds Flashcards
Delay Damages
Surety will be liable for liquidated damages if contract provides for the recovery of liquidated damages.
Consequential Damages
Surety will bbe liable for owner’s consequential damages as a result of Principal’s failure to complete the work.
Bond Form Reformation
It has become popular for obligees (typically the owner) to modify performance bonds to include extremely onerous obligations and to attempt to effectuate waiver/release of Surety’s defenses. Section 2253.023 may negate these attempts if they broaden or restrict the statutory requirements.
Section 2253.023 Attempted Compliance
“A provision in a bond that expands or restricts a right or liability under this chapter shall be disregarded, and this chapter shall apply to this bond.
Included Claims against a Performance Bond
1) Liquidated damages;
2) Actual damages;
3) Cost to complete;
4) Remedying defective work
5) Warranty
Completion of the bond claim up to the contract amount.
Necessity of “Clear Declaration and Demand”
Notice of problem is not enough to invoke the Surety’s involvement. The Obligee must provide notice of a clear breach/default and a request by the obligee for the surety to honor its bond.
Ways Surety Can Satisfy its Performance Obligations
1) Buyback: Surety gives owner a check for the estimated cost of completion.
2) Surety provides a substitute contractor with a substitute bond and owner releases surety.
3) Take over. Surety contracts with contractor to complete the work.
4) Direct completion. Surety manages the project to completion.
Typical Surety Defenses
1) Failure to provide notice of default to the surety.
2) Material Alteration in the contract discharging the surety.
3) Improper payment
4) failure to perform an obligation that goes to the whole of the contract
5) Cost to complete were not reasonable where obligee self-performed
6) statute of limitations– 1 year.
