ConstructionPro Week, Volume: 1 - Issue: 13 - 08/01/2012

Why Do Project Owners Keep Forfeiting Their Performance Bond Rights?

By Bruce Jervis


Project owners require contractors to furnish performance bonds for an important reason – the bond guarantees completion of the project. Performance bonds are expensive. Hence, the premium is factored into the contract price. Why, then, are project owners so cavalier in their administration of bond claims that they repeatedly lose their rights against the bond?


Performance bonds spell out preconditions to the surety’s obligation. These include prompt written notice of the contractor’s default, a proper termination of the construction contract for default, and an opportunity for the surety to elect a method for completing the project. One repeatedly sees instances in which the project owner has failed to satisfy one or more of these preconditions, thus forfeiting the owner’s rights against the bond.


In a recent case in Connecticut, the project owner did everything wrong. The contractor walked off the job and the owner did not notify the performance surety. The owner hired former employees of the contractor to complete the work. Only then, two months after the contractor’s abandonment of the work, did the owner terminate the contract for default, notify the surety and demand compensation from the bond. 


What has your experience been with alternate bid items? Do the advantages of the device justify the complexity it adds? What are some “best practice” pointers for avoiding bid protests and scope of work disputes arising out of the use of alternate bid items? I welcome your comments.




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