{"id":901418,"date":"2023-07-19T10:08:06","date_gmt":"2023-07-19T16:08:06","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901418"},"modified":"2023-07-19T10:08:10","modified_gmt":"2023-07-19T16:08:10","slug":"performance-bond-surety","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/performance-bond-surety\/","title":{"rendered":"Construction Litigation\u00a0Roundup: \u201cTender Is the Fight\u201d"},"content":{"rendered":"\n

Daniel Lund III | Phelps Dunbar<\/a><\/p>\n\n\n\n

A performance bond<\/a> surety for a defaulted general contractor principal found itself with a recalcitrant owner which refused to accept the tender of a replacement general contractor to complete a $3,000,000 construction project in Monmouth County, New Jersey.<\/p>\n\n\n\n

Even before the original GC was off the job, the surety \u2013 having been notified of the contractor\u2019s difficulties in performing the work \u2013 stepped in promptly, providing assistance in the form of an additional contractor. At the surety\u2019s behest, that additional contractor remained on the project (focused principally at the time on roof repairs) after the initial GC was placed in default and terminated.<\/p>\n\n\n\n

Eventually, the surety, by draft tender agreement issued to the owner, offered that the additional contractor serve as the completion contractor for the entire project (not simply the roof repairs), a proposal rejected by the owner \u2013 which had never cared for the additional contractor. Instead, the owner proposed its own completion contractor and, in connection with that offer, demanded a sum of money ($1.6 million) from the surety \u2013 a proposal the surety rejected: \u201c[Owner] cannot choose whatever contractor it wants to complete the work and then charge the costs to [the surety].” <\/p>\n\n\n\n

Ultimately, the owner completed the project on its own, rebidding the project, and demanded its losses from the surety.<\/p>\n\n\n\n

The surety filed suit in federal court in New Jersey seeking a declaration that the surety had fulfilled its obligation when it offered to complete the work via its tender agreement. The surety urged that the owner had \u201cbreached the express terms of the Performance Bond by refusing to accept [surety\u2019s] choice of completion contractor\u2026 pursuant to Section 5.2 of the [AIA-A312] Bond.\u201d At issue was the interpretation of Section 5.2 (providing that the surety may undertake \u201cto perform and complete the Construction Contract itself, through its agent or independent contractors\u2026\u201d), and the extent to which the surety \u201chas the right to use its contractor of choice, even over an owner\u2019s objection.\u201d <\/p>\n\n\n\n

Upon a thorough examination of the bond form, the court \u2013 noting that options afforded the surety under sections 5.1 and 5.3 of the bond both specifically call for the owner\u2019s \u201cconsent\u201d or \u201cconcurrence,\u201d and that section 5.2 is no such requirement \u2013 held in favor of the surety: \u201cAs other courts considering similar contractor terms have found, Section 5.2\u2026 does not grant the [owner] the right to review and reject [the surety\u2019s] selection of completion contractor; [owner\u2019s] remedy for continued poor performance by [the tendered contractor] would be limited to a contractual claim against [the surety], not a veto of [the surety\u2019s] choice of contractor.\u201d <\/p>\n\n\n\n

The surety was absolved of further liability on its performance bond.\u00a0<\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Daniel Lund III | Phelps Dunbar A performance bond surety for a defaulted general contractor principal found itself with a recalcitrant owner which refused to accept the tender of a replacement general contractor to complete a $3,000,000 construction project in Monmouth County, New Jersey. Even before the original GC was off the job, the surety… Continue reading Construction Litigation\u00a0Roundup: \u201cTender Is the Fight\u201d<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14],"tags":[9895,12,9894],"class_list":["post-901418","post","type-post","status-publish","format-standard","hentry","category-construction-2","tag-advise-consult","tag-construction","tag-performance-bond","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nConstruction Litigation\u00a0Roundup: \u201cTender Is the Fight\u201d - 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