Performance Bond

[howardoark]

We did some construction work (lost money). The public agency required a performance bond on our original bid which we obtained. We eventually had a change order for about 2/3s of the original cost that they didn't require a bond on (though our contract with the bonding agency mentions that we were supposed to tell them about change orders at the time which we didn't). Project is over. Bonding agency wants another $1700 to cover the change order. I see nothing in our contract with the bonding company or public agency that requires us to pay that.

But if that's the common practice, we'll pay it. We just don't know enough about construction (never doing that again) to know if that's the common practice.

Thanks

 

[IRstuff]

You say you violated your contract with the bonding company, so why wouldn't you pay the company to make it right? You could possibly negotiate the payment downward, given that it's no longer a bonding risk.

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[Ron]

IRstuff....it is still a bonding risk...performance bonds last quite a while after construction completion.

As for the change order....it is under the original contract, therefore the performance bond applies. Pay the bonding company but obviously try to negotiate the fee.

 

[IRstuff]

Thanks for the clarification. As a minimum, though, the bulk of the uncertainty in a classic performance guaranty is the actual completion of the contract; I assume that the post-contract bonding is more of a traditional O&E insurance.

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[NorthCivil]

You did violate your contract by not telling them about the change order.

However, I assume you weren't bonded for the change order portion of the work. If everything went bust, the bonding agent wouldn't assure for the change order they never knew about. They would've only held to their original contract.

Now that the money has all changed hands, and everything is safe, they are hitting you up for a technicality. I wouldn't want to pay. Is there text in your contract that you are bonded for change orders, even if you do not inform the bonding company? I'm sure there is text in the contract that particularily excludes this. No coverage, no fee, IMO.

 

[IRstuff]

I think one has to consider the potential future cost of litigation. If something goes wrong in the future, it's going to cost your company way more than $1700 to defend against claims against items in the change order, and whether items claimed are supposed to be in the change order.

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[darthsoilsguy2]

The project is done so this is weird and will be a hassle.... i don't know if you mean the job is done for you or for the GC. If the project is open on the GC level, you should be fine. Regardless..... if you look at the contract documents of the original contract i'm sure you will find that you are rightful to charge for this bond increase. It will be a pain in the but to collect but most 'public entity' project managers i know would be open to pay what is a very legitimate cost and $1,700 is not a lot of money relative to the size of the project. I suggest you speak with the prime contractor because you should start there and then with the person who worked for the public entity.

 

[darthsoilsguy2]

just had a thought....
How the heck did the bonding agency find out about this increase in total cost? Somebody told them. was it you? You shouldn't have to pay without being recompensated for the expense. If somebody even HINTS at saying you signed a "Lien Release", be super quick to point out that this expense occurs after whatever releases were signed. it's a gray area but it is gray enough to warrant payment to make go away.

all of this is regional specific... because construction law must be different in different places...... i'm assuming you're in USA.....

 

[Ron]

Howard....keep in mind that you will be responsible for your actions until the statute of repose in your state expires. In your state, it is 10 years. Keep the performance bond in place. That will help protect you for the term. Cheap compared to litigation and other issues.