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Changes to the AIA Performance and Payment Bonds

On Behalf of | Jan 19, 2012 | Surety Bonds and Construction Insurance |

The 2010 revisions to the A312 performance bond made several important changes, concentrating on (1) streamlining the process by which owners can declare potential defaults; and (2) clarifying the surety’s exposure.

In streamlining the default process, the 2010 version no longer requires owners to attempt to arrange a conference with the contractor and surety before declaring the contractor in default. Additionally, the 20-day waiting period for declaring a default has been deleted. The bonds now state that owner’s failure to comply with the notice to surety obligations do not constitute a failure to comply with a condition precedent to the surety’s obligations, or release the surety from said obligations. Also, owner’s obligation to send an additional demand to the surety requiring its performance has been reduced from 15 days to 7 days before the surety is deemed in default. These changes significantly reduce the owner’s waiting period for declaring a contractor in default, while simultaneously reducing the hurdles owners face in seeking intervention of the surety.

The 2010 revisions also focus on clarifying the surety’s exposure. Most significantly, in instances where the surety undertakes to perform and complete the construction contract itself, the surety’s obligations are no longer limited by the amount of the bond.

Among the changes in the A312-2010 payment bond are an increase to the surety’s period of time within which to initially respond to the claimant from 45 days to 60 days, which will not be well received by owners. In addition, a failure of the surety to act under the bond is no longer deemed a waiver of its rights, except for amounts upon which the surety and claimant have previously reached agreement. If the surety fails to send an answer and pay undisputed amounts within the time constraints specified in the bond, the surety is now required to indemnify a claimant for reasonable attorney’s fees incurred in recovering any sums found to be due and owing to the claimant.

To learn more about the issues that may arise for both owners and contractors, please contact a GTH attorney today.