Secret #86: Exoneration Nation – Why Get Off Performance Bonds?

When it comes to performance bonds for contractors, the emphasis is always on getting them. They are normally required on public work. If you cannot bond the job, being a well-qualified low bidder is not enough. Once a contractor gets the performance bond, work commences and they may think they are done with the bonding company.  Actually, every bond has its own life cycle.  Issuance is the birth – but when and how does it end, and why should the contractor care? 

After a project is bonded, the surety may not require any further paperwork from the contractor. Sometimes the obligee wants the surety to provide a Consent to Final Payment or Consent to Release of Retainage. In such case the underwriter may ask for documentation regarding the health and status of the project. But absent that, the contractor may not think it is necessary to communicate with surety at the conclusion of the job. Why is doing so beneficial?

  1. Each bonded contract represents partial use of the contractors’ aggregate capacity. By officially closing out the project the surety capacity is restored. This is obviously important to enable the pursuit of new work.
  2. From the surety’s standpoint, any coverage for the warranty does not commence until the work is accepted and the performance bond is released. It is beneficial for both the contractor and the surety to start, and promptly conclude, the warranty obligation. While outstanding, the warranty is a risk for both.
  3. The third reason involves the payment bond. The recognition claims by suppliers of labor and material is affected by the last date of their supply or performance on the project. Officially closing the contract and performance bond creates one point of reference for evaluation of such claims.

Closing out the bond file is also important for the surety. It enables them to book any remaining unearned premium and concludes their liability. Both the contractor and surety are exonerated from the risk/obligation.

ex·on·er·ate   verb
past tense: exonerated; past participle: exonerated
– to relieve of a responsibility, obligation, or hardship
– to clear from accusation or blame

“The results of the DNA fingerprinting finally exonerated the man, but only after he had wasted 10 years of his life in prison.”

How to Close the Bond File

At the end of the project, whether requested by the surety or not, the contractor should obtain a letter from the obligee stating that the contract has been completed / accepted and the surety bond is released. The contractor retains a copy and sends this evidence to the bonding company. It’s just that simple.

Contractors should assume the responsibility for this action because not all sureties are diligent in requesting closure evidence for their files. It is true that in every case, it is beneficial for the contractor to submit this information to the bonding company.

Exoneration Nation: Be part of it!

FIA Surety is a NJ based bonding company (carrier) that has specialized in Site, Subdivision, Bid and Performance Bonds since 1979 – we’re good at it!  Call us with your next one.

Steve Golia, Marketing Mgr.: 856-304-7348

First Indemnity of America Ins. Co.

Leave a Reply