Surety Law

As a construction project progresses from bidding to completion of construction, unforeseen problems may develop, including failure to perform work and failure to pay for work performed. Surety bonds are regularly used by the parties on a construction project to guarantee the various obligations for performance or payment. To ensure that bidders will execute a contract for their bid amount, owners may require bid bonds during the procurement process. To encourage timely and proper completion of construction projects, owners and general contractors may require their downstream contractors to issue performance bonds. To ensure timely and proper payment to trade contractors and suppliers, owners and general contractors may require their downstream contractors to issue payment bonds for the construction project. If a mechanic’s lien is filed on a project, the owner can demand that the lien be released through the submission of a mechanic’s lien release bond.

At PLDR, the Construction Law Group assists clients with issues involving surety law, including asserting bond claims against principals and sureties, defending sureties on bond claims, and representing sureties in claims against owners when sureties undertake the performance of bonded contracts. Among the matters that PLDR’s attorneys handle are the following:

Performance Bonds

With a performance bond, the principal (i.e. the general contractor or subcontractor) obtains a bond from a surety who guarantees the principal’s performance of the bonded contract, under the conditions expressed in the performance bond itself. If the principal defaults on the construction contract, the obligee (i.e. the party for whose benefit the surety bond is issued) can initiate a claim under the performance bond, seeking remedies from the surety who provided the performance bond. Owners often require performance bonds from general contractors, and, on large projects, a general contractor may require similar performance bonds from its major subcontractors. PLDR’s Construction Law Group represents owners, contractors, and sureties in pursuing and defending performance bond claims. Our attorney’s also represent owners, contractors, and sureties in negotiating the terms of the performance bond and during the performance of contracts for completion after the original contractor has defaulted, also known as “Completion Contracts”.

Payment Bonds

Under a payment bond, the principal (i.e. the general contractor or subcontractor) obtains a bond from a surety who agrees to guarantee the principal’s payment to its downstream contractors and suppliers. If a principal fails to timely pay its downstream contactors, the unpaid contractor or supplier can initiate a payment bond claim and seek remedy from the surety who guaranteed the principal’s payment. Owners often require payment bonds from general contractors, and, on larger projects, a general contractor will often require performance bonds from its major subcontractors. PLDR’s Construction Law Group can assist sureties, owners, contractors, subcontractors, or material suppliers with drafting or responding to initial payment bond claims and litigating the claim all the way to its final resolution.

Federal, State, and Local Government Contracting Bonds

Nearly every public construction project is subject to a legal requirement that the prime contractor provide performance and payment bonds. PLDR’s attorneys are familiar with asserting and defending bond claims under the Federal Miller Act and Virginia’s “Little Miller” Act.

Subcontractor Default Insurance

In some cases, owners and contractors find it economical to obtain Subcontractor Default Insurance (“SDI”) coverage for a project. SDI policies can be a substitute for performance bonds from the subcontractors on large projects. When a subcontractor fails to perform, the SDI policy reimburses the policy holder for the costs resulting from the subcontractor’s default, including the additional costs of obtaining a substitute contractor to complete the work. PLDR’s Construction Law Group can assist clients with SDI coverage claims, including an assessment of whether particular costs are covered by the SDI policy.

Mechanic’s Lien Bonds

By statute, Virginia allows the owner or other interested parties to “bond off” a mechanic’s lien by posting a surety mechanic’s lien bond. This process results in the claimant’s mechanic’s lien being secured by a lien bond instead of the project’s property. PLDR represents owners and contractors in negotiating adequate and proper mechanic’s lien bonds, posting the mechanic’s lien bond, and with Court Orders to ensure that mechanic’s liens are properly “bonded off.”

Bid Bonds

Public owners can require bidders to post a bid bond, which is typically a surety bond equal to a percentage of the bid amount. If a bidder is awarded the contract, a bid bond is used to guarantee that the bidder will execute the contract in the amount it bid. PLDR’s attorneys have assisted clients with bid bond disputes and can assist contractors or owners in seeking an efficient resolution of a bid bond dispute.

Indemnity Claims

A surety bond differs from insurance. With a surety bond, the risk of a claim remains with the principal (i.e. the general contractor or subcontractor) because the principal must indemnify the surety for any losses associated with the surety’s bond, which guarantee the principal’s performance or payment. When a surety agrees to issue a bond to the principal, the principal’s indemnity obligations are set forth in a separate agreement executed by the principal, which is often known as a General Indemnity Agreement (“GIA”) or General Agreement of Indemnity (“GAI”). PLDR’s Construction Law Group represents clients in negotiating GIAs/GAIs and in pursuing or defending indemnity claims under those agreements.

PLDR’s Construction Law Group has the ability to step in at any stage of a surety law matter and assist clients in pursuing an efficient resolution. PLDR has the experience to assist the parties on construction projects with surety law matters and can assist you with your surety law needs or issues.

Mark A. Burgin

Scott W. Kowalski

Andrew P. Pearson

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