There are three types of contract bonds that are commonly used in construction: bid, performance, and payment bonds. Disputes arise in the competitive bidding process with a bid bond when a bidder is awarded a contract bid but does not sign the contract or provide the required performance and payment bonds.
Disputes also occur when the obligee declares a default, and performance payment bond claims are made. When a conflict arises with a bond, Murphy Cordier Casale Axel PLC will help our clients investigate and respond to defaults, we negotiate with bond obligors and claimants, and draft release and settlement documents. When negotiations do not resolve an issue, our surety attorneys will represent the surety in litigation and in indemnity actions.
When a surety receives a valid claim under a performance bond, it can decrease its exposure by asserting a defense available to its principal. These defenses include actions of the obligee which may constitute a breach of the construction contract—relieving the principal and, thus, the surety from liability. Examples include the following:
- Failure to provide plans or specifications without defects;
- Failure to act;
- Unreasonable delays caused by the obligee;
- Improper termination of the principal’s contract by the obligee;
- Failure to provide notice to the principal;
- Failure to allow the principal opportunity to remedy incomplete or inadequate work;
- Overpayment by the obligee; and
- Failure to mitigate damages.
In addition, these defenses may be available:
- Impossibility of performance;
- Set-offs or counterclaims available to the principal against the obligee;
- Improper notice of default under the bond;
- A material alteration of the construction contract;
- The termination of the contract for convenience where the surety’s obligation under the bond is not triggered;
- The claim is not brought in time based on claim deadlines.
The expertise of Murphy Cordier Casale Axel PLC surety attorneys goes beyond working with bonds in construction projects. Our attorneys strive to recover client funds and in assisting with limiting costs to convert property into cash, along with pursuing indemnity claims against those who had a part in the underlying loss.