Surety Bonds and Contract Provisions

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Benefits

While there are many general rules of suretyship, a performance bond is a tri-partite agreement among owner (oblige), contractor (principal) and surety (obligor). The surety acts as the guarantor of the contractor's performance. The rights, duties and obligations of the parties will be determined by the rules of contract interpretation. Key areas of potential dispute focus on the surety's potential exposure to extra-contractual damages.

The payment bond is for the benefit of those furnishing labor and materials to a construction project. Hence, laborers and/or materialmen are the oblige(s) of a payment bond.

Learning Objectives

  • You will be able to review surety rights, obligations and defenses.
  • You will be able to explain performance options.
  • You will be able to define specific contract provisions.
  • You will be able to discuss performance and payment bonds.


Agenda

Overview
  • Performance Bond
    • Tri-Partite Agreement (Obligor, Principal, Oblige)
    • Designed to Protect the Owner From a Contractor's Failure to Complete the Work
    • Designed to Protect a Prime Contractor From a Subcontractor's Failure to Perform the Work
    • Different Bond Forms
  • Payment Bond
    • Designed to Protect Subcontractors and Suppliers Who Provide Labor and Material to a Project Against Nonpayment by the Bonded Contractor, and Further Protects the Owner Against Potential Mechanics Liens or Miller Act Claims
  • Surety Bond Is Not Insurance and Must Not Be Analyzed Under a Traditional Liability Insurance Framework
    • The Surety Does Not Anticipate Any Losses (Right to Indemnification Both at Common Law and Through Contract)
    • Rights and Remedies In Contrast to an Insurer's Limited Rights and Defenses, a Surety Has a Variety of Rights and Defenses It May Assert Against an Obligee
Surety's Rights, Obligations and Defenses
  • Rights
    • Contingent, Derivative Liability
    • Co-Extensive With Principal
    • Obligee Entitled to Only One Performance
    • Notice to Surety
    • Declaration of Default
    • Termination
  • Obligations
    • Duty to Investigate
    • Performance Options
  • Defenses
    • To the Extent Its Principal Has a Defense to the Performance of Its Duty, so Also Does the Surety
    • Specific Surety Defenses Discharge
  • Release/Waiver of Defenses
    • Surety's Waiver of All Defenses Failure to Timely Present Proof of Claim
    • Obligee's Release of Surety Through Settlement With Principal
Specific Contract Provisions – What Is Recoverable?
  • Attorney's Fees
    • Claims Based Solely on the Performance Bond
    • Claims Based on Text of Bonded Contract and Performance Bond
    • Payment Bonds Language of the Bonded Contract
  • Consequential Damages
    • Attorney's Fees Incurred in Disputes With Third Parties
    • Other Consequential Damages
  • Liquidated Damages
Future Litigation
  • Are the Limited Stimulus Dollars and Limited Number of Projects, Going to Spawn Contractors/Subcontractors Who Drastically Underbid, and Thereby Risking Falling Prey to a Termination Scenario?

Faculty

Barbara G. Werther, Howrey LLP

Barbara G. Werther
  • Partner in the Construction Practice of Howrey LLP in Washington, D.C.
  • More than 30 years of experience in construction and government contracts law, representing both contractors and owners in disputes regarding substantial claims for construction defects, delays, acceleration, inefficiencies, default terminations and construction catastrophes, both in the private sector and on public projects
  • Handled construction claims in federal and state courts, and has litigated numerous claims for equitable adjustment, as well as bid protests and claims at the Boards of Contract Appeals and the Court of Federal Claims
  • Recognized as one of the leading construction and government contracts attorneys in the United States in the most recent editions of the Best Lawyers in America, Chambers USA, Superlawyers and Washington, D.C. Area’s Best Lawyers





These Materials are Designed For

Engineers, architects, construction and project managers, presidents, vice presidents, contractors, subcontractors, developers and attorneys

CD & Manual - CD Set with bound 32 page manual
Podcast - 89 Minute MP3 with 32 page electronic manual - Immediate Access and No Shipping Cost