Corporate sureties will not issue payment and performance bonds without collateral … and indemnification. In the event of a loss on the bond, the surety wants recourse. Very large, deeply capitalized construction companies may be able to meet these requirements within the business entity itself. The majority of construction companies cannot. The individual owners of the company must co-sign the industry standard General Agreement of Indemnification (GAI) and often pledge their personal assets.
A surety sued its principal/contractor on a bond loss. The performance surety had settled a bond claim by the project owner without the participation or consent of the contractor and without any judicial determination of contractor liability. The individual shareholders and their spouses, co-signers of the GAI, cried foul. However, a federal appeals court was unsympathetic, as the plain language of the GAI gave the surety these rights.
The second case in this issue involves a claim for changed work. The contractor had added a claim item for differing site conditions. The site condition claim was not viable—the contract provisions in question related to the manner in which the work was to be performed, not the physical conditions at the worksite.
