Bonds Used in Construction Projects
Property owners who seek either construction of or an improvement to a structure are, obviously, required to pay for the construction project. Conversely, construction companies are entitled to receive payment for their services. To protect this relationship, many property owners require the contractors to obtain a bond for their work. Doing so acts effectively as a guarantee to the property owner that the contractor will complete the construction project. Although somewhat straightforward, retaining the services of an experienced Florida construction lawyer can be crucial to ensuring every aspect of a bond submission is met. Similarly, if a property owner needs to enforce a bond, again, the services of an experienced construction law attorney can make all the difference in getting a fair result.
A payment bond is a guarantee that all subcontractors and suppliers who supply construction services to a construction contract will be paid from the general contractor. They are required for public construction projects in excess of $200,000 and are often used on larger private projects. Provided the various requirements included within the Florida Construction Lien Law are adhered to, subcontractors and suppliers will be entitled to look to the payment bond to protect their right to payment. In the context of a private project, the property owner benefits from such a bond in that the property is exempt from claims of lien.
Another type of bond is the performance bond, which provides the property owner with a guarantee that the contractor will endeavor to have the contract completed according to its terms, including the very sensitive issues of price and time. Like the payment bond, the property owner on a performance bond is the obligee, and maintains the ability to institute legal action against the contractor, as well as the surety (insurance company or other entity who acts as the guarantor of the contractor). Subject to the specific terms of the bond and construction contract which it typically incorporated by reference into the bond, if the contractor defaults (that is, by its actions or by a claim of default by the property owner), the property owner may make a demand to the insurance company or other guaranteeing entity. The majority of performance bonds provide the surety with four choices to meet the demand. First, the surety may complete the contract, either by contracting directly with another contractor to finish the job, or having the other contractor contract directly with the property owner to finish the job. Second, the surety may arrange to have the original contractor finish the work with the assistance (usually financial) of the surety. Alternatively, the surety may defer to the property owner and have him/her complete the work, but pay all costs up to the amount of the bond. The fourth choice is for the surety to reject the demand. As these issues tend to be very complex and fraught with numerous pitfalls, it is strongly recommended that any party involved in such a dispute retain experienced legal counsel such as the attorneys at Linkhorst & Hockin, P.A.
Bid bonds typically are used on public projects. A bid bond provides a guarantee to the project owner that, once a contractor is selected, that contractor will, in fact, honor their bid. The obligee, again, is the owner, and, if the bid is not honored by the selected contractor, the owner can initiate litigation to enforce the bond, and the contractor and surety are liable for any additional costs that may be incurred.
Seek Legal Advice
If you are required to obtain a bond as part of a construction project, or you are seeking to collect on a payment or performance bond, and are curious as to how bonds work in construction matters, contact an experienced construction law attorney as soon as possible. The attorneys at Linkhorst & Hockin, P.A. have experience in many aspects of construction law, including both obtaining and enforcing bonds. We have the ability to work with your particular circumstances and help you achieve the end result that you need. Let us use our knowledge to help you obtain the best possible solution. Contact us today.