In the circumstance of an owner’s (or its lender’s) requirement that the general contractor or construction manager (collectively, “contractor”) post payment and performance bonds, the contractor, invariably, provides bonds in the form of AIA Document A312-2010 (the “A312”). The payment bond is primarily for the benefit of the contractor’s subcontractors and allows the subcontractors to make claim on the bond for nonpayment. The performance bond is for the benefit of the owner and, theoretically, allows the owner to make claims on the bond if the contractor defaults and recover its damages for nonperformance. We say “theoretically” because the performance bond portion of the A312 is so full of conditions and traps for the unwary owner that it may be of little value. For this reason, we caution against its use.
Traps of the A312 Bond
One would think that a performance bond simply guarantees the full performance of the contractor and acts as insurance against losses an owner suffers as a result of the contractor’s default during the course of the work or as a result of other noncompliance with the underlying contract, such as correcting warranty or nonconforming work following the completion of construction. While on its face, the A312 provides this coverage, it provides traps which may deny the owner the benefit of its bargain.
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