A performance bond ensures that the bonded contractor or subcontractor will complete its work on a project. If a bonded contractor or subcontractor defaults, the surety should step in and exercise one of its options under the bond, which typically includes arranging for the completion of the defaulted contractor’s work.

Often, before a surety’s obligation to complete the defaulted contractor’s work is triggered, the surety must be given written notice of the contractor’s default. This gives the surety the chance to choose one of its options under the bond.

If an owner or contractor fails to provide any required written notice before hiring a replacement contractor or subcontractor to complete the work, the surety may assert the lack of written notice as a defense to a performance bond claim.

But what happens when an owner or contractor fails to timely provide the required written notice of default and the surety, once it learns of the default, indicates that the owner or contractor’s decision to hire a replacement contractor or subcontractor is fine?

In that situation, it’s possible that the surety may have waived its right to timely written notice. A recent federal court case—VEC, Inc. v. Joyce Electrical, Inc.—recently addressed such a situation.Continue Reading Can a Surety Waive Its Right to Notice Under a Performance Bond?

When a subcontractor goes unpaid on a public project, the subcontractor will almost always demand to be paid by the surety that issued the payment bond for the project. Sureties have many defenses to bond claims.

One of their favorite defenses is that the surety’s liability is coextensive with that of its principal’s (i.e., prime contractor’s) liability under the subcontract. In other words, sureties like to argue that unless the prime contractor is liable under the subcontract, the surety has no liability to the subcontractor for unpaid work.

Many courts have addressed the above “coextensive liability” argument and at least some have generally agreed that the surety’s liability is coextensive with the prime contractor’s liability. But there are courts that have found exceptions to that general rule under the federal law governing performance and payment bonds on most federal projects–the Miller Act.Continue Reading Surety Liability – Not Always Limited to the Principal’s Liability

Unpaid subcontractors on federal government projects typically have payment bond rights that allow subcontractors to sue for payment to which they are entitled. There are many deadlines subcontractors must meet to preserve their rights under a payment bond. One deadline requires subcontractors to file a payment bond claim no later than one year after the day on which the last of the labor was performed or material was supplied by the person bringing the action.

One year seems like plenty of time to file a payment bond claim, but you would be surprised how many subcontractors wait until the last possible second to file a payment bond lawsuit. That’s dangerous because it may subject an otherwise valid payment bond claim to the argument that it’s untimely because it wasn’t filed within one year of the last performance of the subcontractor’s work.

That’s exactly what happened in a very recent federal court case, United States ex rel. RCO Construction, LLC v. Federal Insurance Company. In that case,  a federal court judge provided one of the most thorough analyses of the one year statute of limitations for federal payment bond claims I have ever seen.Continue Reading The One Year Statute of Limitations for Subcontractor Federal Payment Bond Claims