On most construction projects, it is virtually impossible to guarantee that the contractor will complete all work and pay all subcontractors and suppliers. Fortunately, through the use of a “surety,” it is possible to gain security that funding and personnel will be available to complete the project and make all payments that are owed.
Public entities have required the use of sureties for years on publicly funded projects. A surety is a person or company (usually a licensed business entity) who guarantees the performance of its principal, the contractor, to another person, the project owner. The surety also may guarantee payment by the contractor to all laborers and suppliers on the project. The surety attaches itself to the project in the form of a payment and/or performance bond, which ensures that the work will be completed and claims for payment by other contractors are indeed paid.
Savvy project owners have begun to utilize bonding as a way to ensure that liens do not cause them financial harm and their projects get completed. The bond provides a way for subcontractors and suppliers to get paid, without having to chase down a general contractor who may have abandoned the project.
Finally, you may discover that your state’s contractor regulating agency requires all contractors to have a statutory bond in order to obtain licensing. Washington state is a wonderful example of this state protection to consumers and other contractors, who sometimes find themselves without a remedy to payment.
In order to collect against a surety bond, legal action may be necessary. Washington state, for instance, demands a particular statutory mechanism for attachment of a bond. Once attached, a claimant must prove priority in order to collect upon that bond. While contractors are not excluded from obtaining recovery of the bond’s proceeds, they will find that consumers hold priority to those funds. Each state’s law is different, but all states have laws governing claims against sureties and bonds.
Recovery of public and private project bonds may require prompt action, and claims are limited by strict statutes of limitations. As a result, a claimant should obtain as much information as possible about its project’s surety and bond. This will help when it comes to taking action against the bond. Once a dispute arises, a claimant may be required to send specific notices to the project owner and bonding company. The type of notices will depend upon state law, the type of project, and the type of claim.
The Smiley Law Firm has assisted many clients with their claims against sureties and bonds. We understand the bonding process and want to ensure that your rights are protected. You can review the resources below for further information on bonding on sureties.
Construction Law Monitor – Please peruse our informative blog postings at the Construction Law Monitor. Here you will find articles on the subject of bonds and sureties.