Performance Bond

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Saba Ghazi Zahedi

March 02, 2022 19:02

I just read AIA A312 section 7 that Surety is obligated for responsibilities of the contractor for correction of the defective work and completion of the contract, So if the initial cost of the project was 500K, but it went up to 800K because of the contractors default, and he bankrupted. The surety would pay the owner 800k or 500k? 

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  mermann March 02, 2022 19:29

  Neither one…..the surety would pay $300k so the amount, out-of-pocket for the owner was fixed at $500k. In other words, a surety for a $500k project provides the owner peace of mind that, in the end, the project will still cost the owner $500k, even if the contractor flakes out.

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  Saba Ghazi Zahedi March 02, 2022 19:44

  Thank you!

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  Saba Ghazi Zahedi May 11, 2022 20:28

  What if the contractors defaults exceed the original contract sum? Like in this case it goes up to $1200. Does the performant bond cover the $700 or the $500 is the max?

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  mermann May 11, 2022 21:03

  The surety will then cover everything so that the owner still pays what they were promised to pay. No matter what happens, the owner will take possession of a completed building at the promised price and the surety will cover everything else.

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  Saba Ghazi Zahedi May 12, 2022 21:17

  Thank you so much!

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