No, THIS picture: (True story) The bonded contractor is a long established masonry contractor working as a sub. They got on a sizable contract with a big GC. The work was their normal stuff – a thin brick system on the exterior of the building.
There were frequent schedule delays and the substrate was unacceptable resulting in a work stoppage for nearly two months.
The GC started to correct the substate, but without an agreed / revised schedule, they filed a performance claim on the bond.
The mason’s attorney was confident they were not in default and would succeed in mediation. However, upon review of the contract, the surety’s claim department wanted to settle quickly and paid out 6 figures.
What’s wrong with this picture? How could this bad situation have been prevented?
Can you always trust the contract and bond forms of a “big GC” to be fair to all parties? Maybe not. We suspect that the mason did not have his attorney review the contract in advance.
What about the surety? They are a party to this obligation. On a significant project their due diligence should include a review of the proposed contract. THAT would have been the time to request adjustments – or walk away from a bad situation.
To make matters worse, the surety wants to settle quickly. What would have been the outcome if they stood firm? We’ll never know. But the contractor ends up with a net loss on his record forever – very unfortunate situation.
With over 45 years as a surety only carrier, we know how to support our agents and contractors, before, during and after bond issuance. “Experience matters!”
FIA Surety / First Indemnity of America Insurance Company,a Palomar Company 2740 Rt. 10 West, Suite 205 Morris Plains, NJ 07950 Office: 973-541-3417
A Carrier Providing A Rated, T-Listed Bonds in all States!
BE the person with the answers. BE the one that closes deals. Here is a FREE opportunity to build your expertise:
On Tuesday April 1, 2025, FIA Surety is offering our next Free CE Zoom webinar: “Advanced Financial Statement Analysis” 8:45 am to 12:10 pm Eastern time, 3 credits, No exam. Learn, earn and have fun along the way! Join us. Register ONCE and you can attend any of our future monthly Free CE programs.
WHEN should you send a Contract, Site or Subdivision account to FIA Surety? For over 45 years, FIA has been a unique, problem solving surety carrier – a true specialist.
Say you have a client that requires some “extra thinking.” Should you try all your regular markets first, then go to FIA, or go to FIA first?
Here’s the difference: Option 1: Hello FIA! Here is a client we believe in, despite a few rough spots. The rest of the market has declined it. Please tell us how you can support it.
Option 2: Hello FIA! Here is a client we believe in, despite a few rough spots. We’re coming to you first. Please tell us how you can support it.
See the difference? Take advantage of our guaranteed same day response on new submissions.
FIA Surety / First Indemnity of America Ins. Co., a Palomar Company 2740 Rt. 10 West, Suite 205 Morris Plains, NJ 07950 Office: 973-541-3417
A Surety Carrier Providing A Rated, T-listed Bonds in All States!
For your entertainment, here is what contractors need to know when their project is cancelled:
Steps to Consider When Your Contract is Terminated for the Convenience of the Government (or any other contract owner)
When a construction project is terminated for convenience, the contractor should take the following actions to protect their interests and ensure proper closure:
1. Review the Contract Terms
Carefully examine the termination for convenience clause in the contract.
Identify the procedures, rights, and obligations outlined in the contract.
Determine the compensation provisions for termination (e.g., payment for work performed, demobilization costs, and reasonable profit).
2. Request Written Termination Notice
Ensure the termination is formally communicated in writing as required by the contract.
Confirm the effective date of termination.
3. Cease Work as Directed
Stop all work as soon as the termination notice is received, unless otherwise instructed.
Secure and protect materials, equipment, and unfinished work.
4. Notify Subcontractors and Suppliers
Inform subcontractors and suppliers of the termination.
Settle outstanding obligations and cancel any unfulfilled orders, if applicable.
5. Document Work Completed and Costs Incurred
Prepare a detailed report of all work completed up to the termination date.
Maintain records of costs, including labor, materials, equipment, and overhead.
Identify and document termination-related expenses (e.g., demobilization, storage, and restocking fees).
6. Submit a Termination Settlement Proposal
Prepare and submit a claim for compensation based on the contract’s provisions.
Include direct costs, reasonable profit, termination costs, and any unpaid balances.
Follow the contract’s timeline and requirements for submitting the proposal.
7. Return or Dispose of Government/Owner-Owned Property
If applicable, return any materials or equipment provided by the owner.
Dispose of or transfer property as directed in the termination notice.
8. Negotiate Final Compensation
Engage in negotiations with the owner or contracting entity to settle final payments.
Ensure the final settlement accounts for all allowable costs and entitlements.
9. Address Legal and Insurance Considerations
Consult legal counsel if necessary to protect contractual rights.
Notify the insurance provider of the project termination and adjust coverage accordingly.
10. Conduct Internal Review and Lessons Learned
Analyze the reasons for termination and identify any contractual risks.
Use the experience to improve contract negotiations for future projects.
Consult with legal counsel to draft a termination settlement proposal or contractor notification letter.
When a construction project is terminated for convenience, the contractor must properly address obligations with the bonding company to avoid any financial or legal complications. Here’s what needs to be done:
1. Notify the Bonding Company Immediately
Inform the surety (bonding company) in writing about the termination.
Provide a copy of the termination notice and any relevant contract provisions.
Ensure the bonding company is aware of any potential claims or financial adjustments.
2. Review the Bond Agreement
Examine the terms of the performance bond and payment bond to understand the bonding company’s obligations.
Determine if any provisions address termination for convenience and what actions must be taken.
3. Request a Bond Release or Adjustment
If the contract is terminated before completion, ask the project owner if they will release the performance and payment bonds.
If partial work is completed, negotiate a bond reduction to reflect the remaining obligations.
4. Provide Documentation and Close Out the Bond
Submit records of work completed, payments made to subcontractors/suppliers, and any outstanding claims.
If subcontractors or suppliers were unpaid, ensure the bonding company is aware to avoid claims against the payment bond.
5. Work with the Surety on Final Financial Obligations
If the termination results in financial losses, work with the bonding company to assess any potential liability.
Ensure the surety does not face unnecessary claims due to unresolved subcontractor or supplier payments.
6. Confirm Final Bond Status
Once the termination settlement is finalized, obtain written confirmation from the surety regarding the bond status.
Ensure that the bonding company formally closes out or adjusts the bond. ~ ~ ~
This information is presented for your entertainment. For legal advice, contact your attorney!
FIA Surety / First Indemnity of America Insurance Company A Palomar Company 2740 Rt. 10 West, Suite 205 Morris Plains, NJ 07950 Office: 973-541-3417
FIA Surety: A carrier providing A rated, T-listed bonds in all states: Contract, Site and Subdivision bonds up to $10,000,000.
