Avoiding Performance Bond Claims on Disputed Contracts

What is a Performance Bond?

A performance bond (or contract bond) guarantees satisfactory completion of a project according to the terms outlined in the contract.

If a business or an individual hires a bonded contractor and they fail to meet the terms outlined in the contract, they can bring a claim against the contractor’s bond. If the claim is valid, the contractor’s bonding company will compensate the client on behalf of the contractor.

It’s much easier for bonded contractors to win bids over non-bonded ones. Non-bonded contractors are usually not allowed to bid on bonded projects. Some factors that bonding companies consider when deciding to bond a contractor are their financial status, credit health, and experience.

A performance bond is not insurance. If there is a claim against a bonded contractor, the bonding company will compensate the customer, but the Surety company will require the contractor to pay the principal amount plus expenses.

Tips to Avoid Performance Bond Claims

There are several things you could do to avoid performance bond claims including reading contracts carefully and being aware of what California contract bonds make you responsible for.

When reviewing a contract, read all the provisions, particularly the ones related to performance. Read the contract resolution mechanism carefully and follow it if a dispute arises. Make sure both you and the client have a clear understanding of the scope of the project.

In case a dispute arises, think twice before stopping work, as stopping work almost always results in a claim.

Project delay is one of the most common issues leading to claims. If a particular delay factor is beyond your control, talk to the client about the delay in a timely manner. Abide by the terms regarding the provision of notice to the contract owner.

Communicate effectively with your clients along with providing proper documentation. Use project management tools designed to help streamline project management processes.

H.M. Vreeland is committed to helping contractors secure the bonding they need. We are one of the oldest Surety bonding companies in California and pride ourselves on old-fashioned service with the convenience of today. We help businesses make informed decisions. To schedule an appointment, call (415) 566-3401.