The larger a project is, the greater the chance of a dispute arising. As more and more parties are introduced to help bring a project to fruition, it quickly becomes apparent if an effective system is in place to ensure that all parties are accountable for the terms of their various contracts. For megaprojects, the smallest disturbance could have vast ramifications if not dealt with swiftly. In other words, it’s vital that contractors, subcontractors, and owners understand their contractual obligations to one another before breaking ground.
The most effective way to achieve this is through the use of bonds. In part three of this four-part series, we discussed one such bond — the payment bond. Remember, bonds are mandatory for most public projects in the United States, and this is doubly so for megaprojects, which we introduced in parts one and two. Now, the Miami contractor attorneys at Cotney Construction Law will discuss another important type of bond — the performance bond.
To ensure that contractors meet the terms of the contract, a performance bond can be established between the owner and contractor. Similar to a payment bond, the performance bond is supported by a surety. When a contractor defaults, goes bankrupt, quits, or contributes subpar or defective work to a project, the surety will step in to remedy the issue. Generally, this remedy involves the surety buying out the contract or hiring another contractor to complete the project. The value of the remedy shouldn’t surpass the value of the contract. This value is referred to as the penal sum of the bond. That said, this bond can incorporate broader remedies if deemed acceptable by the contractor and owner. Other important features of performance bonds include:
- Performance bonds can extend beyond completion of the contract to include warranties and maintenance.
- In addition to actual damages related to a contractor’s failure to meet the terms of the contract, performance bonds have the ability to secure the recovery of liquidated and consequential damages. This is one advantage that bonds have over commercial general liability and professional policies.
- Although it varies by state, performance bonds typically cover latent construction defects for a certain time period after project completion. For example, Florida utilizes a standard five-year contract statutes of limitation stemming from the date a project officially wraps up.
Miami Contractor Attorneys and Megaprojects
At Cotney Construction Law, our Miami contractor attorneys help contractors maintain legal compliance and procure payments through aggressive representation. With an unprecedented commitment to serving the industry, our attorneys have helped contractors grow their businesses and take on increasingly large and lucrative projects. Whether you are a contractor who is interested in working on megaprojects or simply a contractor who needs help getting paid from an uncooperative owner, a Miami contractor attorney from our firm can get the job done so you can focus on what matters most.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.