A performance bond ensures that the contractor or subcontractor that obtains the bond will complete its work under the parties’ contract. When a bonded contractor or subcontractor defaults, the surety that issued the bond should step in and exercise one of its options under the bond.
One of the surety’s options is to complete the defaulted contractor’s or subcontractor’s work. Frequently, the performance bond provides that a surety will not have an obligation to step up and complete the work unless the contract with the contractor or subcontractor has been terminated.
The United States Court of Appeals for the First Circuit very recently considered whether a surety was liable for over $3 million in remedial costs that a prime contractor incurred to repair the work of one of its bonded subcontractors. See Arch Ins. Co. v. Graphic Builders, LLC, 36 F.4th 12 (1st Cir. 2022).