Picture this scenario: You are the owner/developer of a residential condominium project which is approximately 50 percent complete and you are operating under a tight time schedule to complete the project and close on several unit purchase agreements. Your general contractor informs you that, due to economic distress, the last requisition funded by your lender was used to pay subcontractors on a different project. You also are informed that the general contractor plans to close its business and that several subcontractors are preparing to file liens. The project is grinding to a halt.

A substantially similar scenario recently faced a client of ours and, working with the general contractor’s payment and performance bonds surety, we succeeded in resurrecting the project and placing it on a sound path to completion. We believe our experience provides a helpful guide to the practical operation of payment and performance bonds in the context of an undisputed contractor default.

The Performance Bond

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