As most of you know, a new version of the AIA A312 performance bond came out in 2010 “replacing” the 1983 version of the A312. As we enter year two of the A312-2010 I thought it was a good time to point out some of the “key features” of the A312.
Time to Sue
If you plan to bring an action to enforce your rights under the AIA A312-2010, Section 11 of the bond provides that you must do so:
- Within two (2) years after a declaration of contractor’s default; or
- Within two (2) years after the contractor stopped working; or
- Within two (2) years after the surety refuses or fails to perform its obligations under the bond
Note that your time to sue will run from the first event above.
Failure to Provide Notice
Under New York case law, the failure of the Owner to comply with conditions precedent in a performance bonds has traditionally been considered a material failure and has prohibited recovery under the bond. However, the A312-2010 specifically states in Section 4 that failure to comply with the bond’s notice requirements shall not shall not constitute failure to comply with a condition precedent and shall not release the surety from its obligations unless prejudice to the surety can be shown. Of course, I would not suggest that any of you test the surety’s ability to establish prejudice – keep your notice timely and comply with the notice provisions of the bond.
The Surety’s Default
If the surety defaults and fails to take action as required under the bond, the Owner may, after providing the surety with seven (7) days written notice demanding performance under the bond, enforce any remedy available to it under the bond. In other words, if you plan on suing the surety for non-performance, you must first given them seven (7) days written notice demanding performance. This provision (Section 6) would be a condition precedent to suit.
The Surety’s Options
The surety, after receiving notice of the claim, may:
- Complete the contract;
- With the Owner’s consent, arrange for the original contractor to complete the contract;
- Obtain bids and arrange for others to complete the contract and pay the Owner any additional costs above the original contract amount that it incurs in completing the contract through others;
- Waive its right to perform and complete, notify the Owner of its liability under the bond and pay the Owner; or
- Deny liability to act, in whole or in part, notifying the Owner of the reasons for such decision.
Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC and practices primarily in the area of construction law. He can be reached at email@example.com
or (631) 752-7100.