The Surety’s Options For Default Under A Florida Performance Bond
A performance bond is a guarantee in favor of one party to a contract to protect against the failure of another party to meet its obligations. Because it focuses on performance, the bond relates to the satisfactory completion of the project in accordance with the project plans and specifications. Florida’s statute on public construction projects requires a performance bond, while one may also be required for private works. This type of bond is different from another one that is frequently used in construction: Payment bonds are issued to secure that all contractors, suppliers, and laborers will be paid, and no lien could be placed on the property for nonpayment.
Performance bonds are issued by surety companies that provide the financial backing, and it is often the property owner that requires one. The third party in the arrangement is the contractor, acting as principal to purchase the bond and secure performance. Ideally, there would never be a need to address the bond, but disputes over performance may lead the surety to take action. A Florida bond claims attorney can explain details, and some information about potential options for the surety is helpful.
Options for Surety After a Contractor Default: The arrangement among the property owner, contractor, and surety is a type of insurance policy on performance. The contractor pays a premium to the surety, usually a percentage of what damages could be recovered in the event of default. If the contractor does not perform as required by the contract, the surety agrees to pay for losses to the owner.
The surety is on the hook for the amount of loss, so the company will pursue legal remedies as dictated by the terms of the performance bond OR Florida statutes. Options may include:
- The surety could pay the amount of the bond to the owner or cover the cost of completing the work as the contract specifies.
- The company might opt to finance the current contractor to finish the project according to the contract, which is often the case when things are close to completion.
- It may be possible for the surety and contractor to negotiate and work together to complete the construction project to the owner’s satisfaction.
- A surety might decide to take over the project from the defaulting contractor, arranging for a replacement contractor to handle the remaining scope of work.
With any of these options, the contractor is financially obligated to pay back the surety according to the performance bond terms.
Tips for Avoiding Performance Bond Issues: The best way for contractors to avoid delays and disputes is to be in constant communication with other parties. When issues arise, attempt to find solutions before they turn into defaults that the property owner may pursue through a bond claim.
Consult with a Florida Bond Claims Lawyer About Your Rights
If you would like additional information about the surety’s options when a contractor defaults on a performance bond, please contact Linkhorst & Hockin, P.A. You can call 561-626-8880 or check out our website to schedule a consultation at our offices in Jupiter, FL.