Perfecting a performance bond claim in Texas requires careful attention to legal requirements and procedural details set forth on the face of the bond and under Texas law. Perfection of a performance bond claim is often intertwined and complicated by owner concerns over project delays that arise any time a construction contractor is in default. This article discusses key considerations for owners when faced with a time-sensitive need to perfect a performance bond claim.
Understand the Bond
Before pursuing a claim and notifying the contractor of default, thoroughly review the terms and conditions of the performance bond. Understand the obligations of the parties involved, the conditions for making a claim, and any limitations or exclusions. Not all bonds are created equal. If the opportunity exists, have an attorney draft the performance bond before the prime contract is executed.
Timeliness
In Texas, there are strict time limits for making a claim on a performance bond. Ensure that you adhere to these deadlines, which are typically stated within the bond and start from the date of contractor’s anticipatory breach, actual breach, repudiation, abandonment, or default. As soon as you become aware of the prime contractor’s potential default or repudiation of the contract, you should put the surety on written notice to avoid any potential defense of prejudice.
Notice Requirements
Many performance bonds require the claimant to provide written notice to the surety and the bond principal within a specified period after the default occurs or, in some cases, even before declaring default. For example, on an AIA A312 performance bond, the bond details owner obligations to give written notice to the surety and have a pre-default conference with the surety before formally declaring the contractor to be in default. Failure to comply with notice requirements can jeopardize your claim. To facilitate the claim, some communications among the parties may be verbal. Designate a particular person to take notes of any calls or verbal conversations with the principal and the surety, and circulate the notes to the surety in writing afterward.
Documentation
Gather and organize all relevant documentation to support your claim. This may include contracts, correspondence, invoices, proof of default or non-performance, project photographs, schedules, and any other evidence that substantiates your claim. Project photographs and videos of a partially completed project on the date of default or abandonment prove invaluable. Regardless of who is in charge of completing the remaining work on the project, be sure to appropriately track, document, and notify the surety of (1) all defective work performed by the bond principal before it gets remedied, providing a reasonable opportunity to inspect; and (2) all change order work performed outside of the bond principal’s scope. Diligent efforts to preserve and track the original contractor’s performance as well as any completion contractor’s performance will ensure the owner is able to accurately present and substantiate its performance bond claim.
Litigation
If discussions directly with the surety fail to resolve the dispute, be prepared to file suit timely. For example, a suit on a performance bond on a state public project, such as a public school, may not be brought after one year from the date of final completion, abandonment, or termination of the public work contract. The performance bond itself may also provide for a date by which claims must be filed, in which case the owner should abide by the earliest deadline to ensure preservation of claims.
Legal Assistance
Consider seeking guidance from a qualified attorney with experience in construction law or surety bonds early on.
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By carefully addressing these considerations and ensuring compliance with relevant legal requirements, owners can enhance the likelihood of successfully perfecting a performance bond claim in Texas.
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