Surety Obligations for Performance and Payment Bonds in Contractor Default

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Discussion Overview

The discussion revolves around the obligations of sureties for performance and payment bonds in the context of a contractor's default on a construction project. It explores the financial implications for the surety in relation to the amounts owed to the owner and the costs incurred to complete the project.

Discussion Character

  • Debate/contested

Main Points Raised

  • One participant suggests that the surety would need to pay the full amounts of both the performance and payment bonds, totaling $200,000, and is uncertain about the additional costs incurred by the new contractor.
  • Another participant questions the appropriateness of the inquiry within a physics forum, suggesting that legal matters should be directed to a claims lawyer.
  • A third participant defends the relevance of the question by stating it pertains to an engineering context, specifically a design and build project.

Areas of Agreement / Disagreement

Participants express disagreement regarding the appropriateness of the forum for this discussion, with some asserting it is relevant to engineering while others believe it should not be discussed here. There is no consensus on the surety's financial obligations.

Contextual Notes

The discussion does not clarify the legal definitions or conditions under which the surety might be obligated to pay, nor does it resolve the implications of the contractor's default on the bonds.

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A contractor furnished a performance bond having a face value of $100,000 and a payment bond of $100,000. The contract price was a lump sum of $1,000,000. The contractor had completed 60 percent of the work and had been paid $540,000 by the owner. Then the contractor defaulted, leaving unpaid bills to workmen and suppliers of $120,000. The owner engaged another contractor to finish the job for $475,000. Does the surety for the performance and payment bonds have to pay anything to the owner? If so, how much, and why?



What I thought was that the Surety would need to pay the full $100,000 of the performance and the full $100,000 of the payment bonds. However I am not sure if the surety would also be required to pay the difference between the new contractor finishing cost of $475,000 and the $460,000 finishing cost of the first contractor.
All together what I am thinking is that the surety would have to pay $215,000 to the owner.
 
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Why the hell are you asking this in a physics forum? Go contact a local claims lawyer for matters like this, don't post them in the Engineering Systems and Design section.
 
This is an engineering question. Mainly pertaining to a design and build engineering project. (Fictional construction project)
 
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