As a general contractor, there are numerous projects where you want to ensure certain subcontractors are bonded. This means you want to ensure they provide a payment bond and performance bond. Requiring the subcontractors to be bonded is important for risk-assessment in the event the subcontractor, among other risks, defaults and you need to look to the performance bond to complete the subcontractor’s scope of work. (The performance bond guarantees the faithful performance of a defaulted subcontractor’s scope of work.)
Perfecting rights under a subcontractor’s performance bond requires dotting your i’s and crossing your t’s. The subcontractor’s performance bond will incorporate its subcontract. Thus, the general contractor needs to ensure that it (a) properly defaulted the subcontractor pursuant to the subcontract and (b) properly triggered the performance bond’s obligations under the bond. Not doing either, as this recent case explains, will result in the general contractor breaching the performance bond and discharging the obligations under the bond.
When dealing with a performance bond issue, it is important to understand those steps that must be taken to trigger obligations under the performance bond. This requires an examination of the subcontract and, of course, the terms of the bond. It is always advisable to work with counsel to make sure that rights under the performance bond are not being discharged by avoidable actions.
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