Page 263 - Urban Construction Project Management

218 Chapter Ten
Exhibit 10-4 Signed and sealed this day of
(Continued)
IN THE PRESENCE OF: (Seal)
Principal

(Seal)
(Seal)
By
Attorney-in-Fact

and subcontractor, and therefore the surety, are only responsible for no more than two
tiers of sub-subcontractors below them. However, the contractor must read the contract
documents, and perhaps consult its construction-oriented attorney, to make sure of this
depending on applicable law in the location. The CM/GC and subcontractors need to
make changes in the contract language if there are any legal concerns before the con-
tract is signed and the bond submitted. An alternative to payment or performance bonds
is contractor default insurance, sometimes referred to as subguard. It is important to
contact the insurance and bonding consultants to properly evaluate these types of pro-
grams. Exhibit 10-5 contains a sample payment bond.

Maintenance Bonds

Maintenance bonds guarantee that for a specified period after the project is complete,
the project will remain free of defects caused by poor workmanship and defective mate-
rials. Sureties do not like to write maintenance bonds beyond 2 or 3 years after the com-
pletion of the project.

Completion Bonds

Completion bonds have obligees that do not actually have a contractual obligation to
the principal. A municipality may require a completion bond that guarantees that
streetscape work will be done correctly. Although, the city is not paying for the work—
the owner of the building nearest the streetscape work probably is—the city still wants
the work done correctly and perhaps according to the latest city ordinances and master
plan for the area, requiring a certain amount and type of sidewalk and lighting. These
types of bonds are unique because the CM/GC and subcontractor could be required
to finish the work even if they are not being paid. The CM/GC and subcontractor are
supposed to be paid by one party, but the bond’s obligee is another, in this case the
municipality. Surety companies are usually quite cautious about writing these bonds.

These are generalizations. Read the bonds—they put your company and its principals
at risk. An obligee can ask for standardized bond forms like those developed by the
American Institute of Architects (AIA) or American General Contractors Association
(AGC); however, some obligees have their own bond forms that can be onerous.
Sometimes the standard bond forms have changes and clauses that may cause concerns
or problems as well.