Kushnick | Pallaci PLLC Attorney At Law

Release of Surety on Bid Bonds

Release of Surety on Bid Bonds

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A surety is no longer liable on a bid bond obligation once the contractor fulfills its obligations under the bid bond.  This may occur when the selected bidder enters into a contract with the property owner, when a contract is awarded or all bids rejected in which case all unsuccessful bidders’ bonds are discharged, or if a bidder withdraws his bid. Alternatively, a surety is released from its bid bond obligation if there is an alteration of the obligation, the contractee fails to award the contract, or an excusable bidding error occurs.

A surety may be discharged by any alteration of the contract to which the guaranty applied, even if such alterations prove not to be material.  This is the case because a surety relies on bid documents to issue a bid bond and changing the contract awarded is the equivalent of changing the agreement to something neither the surety nor the contractor agreed to.  An example of such an alteration occurred in Hall & Co. v Continental Cas. Co.,  30 N.Y.2d 517, 330 N.Y.S.2d 64 (1972), where a change was made after the issuance of a bond but prior to the execution of the underlying contract.  No notice was given to the surety, and the principal’s obligation to contractor was altered from making progress payments to making lump-sum payment after completion of all work.  Based on these alterations, the court found that the surety was released from its bid bond obligation.

A surety may also be discharged of its bid bond obligation where the property owner fails to award the contract to any of the bidders.  In this case the bond is discharged and the property owner cannot recover against it.  Similarly, once the contract has been awarded, all the bonds of the unsuccessful bidders are released.

Finally, a surety and a contractor may be released from all bid bond obligations in the event the contractor makes an excusable bidding error and withdraws his bid.  An example of an excusable error existed in City of Syracuse v Sarkisian Bros., 57 N.Y.2d 618, 454 N.Y.S.2d 71 (1982), where the defendant contractor was awarded a contract based upon its erroneous bid. The contractor had prepared a bid proposal in accordance with the plans and specifications of the plaintiff, but prior to submitting the bid realized it could have bid lower.  In transcribing the lower amount, a clerical error was made but was not discovered until the bid had been submitted.  Despite notifying the plaintiff of the error, the defendant contractor was nonetheless awarded the contract.  The court sided with the contractor however, and released him and the surety based on his error being excusable.

Where the error is due to a contractor’s negligence to include an item in his bid or read the job specifications carefully, however, the contractor has the choice of honoring its mistaken bid or forfeiting the bond.  In Matter of G & R Elec. Contrs. v Egan, 57 N.Y.2d 721, 454 N.Y.S.2d 710 (1982) petitioner was a contractor who had bid on a project and later attempted to withdraw its bid on the ground that it would suffer severe financial loss were it to subcontract out installation work that it neglected to see was necessary. The Office of General Services declined to waive the approval requirement and held that contractor’s predicament was the result of its own negligence, not any computational error, and declared the bid security forfeited.  The court found the forfeiture of the bond to be reasonable due to the contractor’s failure to read the specifications of the job carefully and agreed this was not a computational or excusable error.

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