Page 270 - Urban Construction Project Management

Insurance and Bonds 225
the potential default in the performance of the work or cost incurred to remedy the
deficiency in the work.
• There are many types of bonds. It is important to understand the contract terms and
conditions as to what type of bonds are required.
• A bond may be requested if the GC or owner is not fully comfortable with the abil-
ity of a contractor to perform the work, and to minimize potential financial exposure
because of the work not being performed to the terms of the contract.
• Termination of a contractor and calling in the bond with the bonding company
should be a last resort. The contractor should first be given notice to remedy the
problems.
• There should be a dispute resolution clause in the bond, such as arbitration to allow
for resolution of a claim.
• Try to avoid clauses in the contract and bond that allow for termination for con-
venience instead of for due cause. Once a bond is issued, it cannot be canceled. It
protects the obligee until the contract has been performed, unless there has been
non-cardinal changes. A cardinal change may be a large change in contract price
of more than 20% or an addition of an item of work not normally performed by
that particular CM/GC or subcontractor.