Making a Claim on a Performance Bond

Making a Claim Under a Performance Bond

There are three conditions of precedent for a Surety acting under a Performance Bond:

1)      The Obligee must have declared the Principal to be in default

2)      The contractor must be in default

3)      The Obligee must have fulfilled their obligations

When a Surety likely will NOT respond:

1)      When there has been no declaration of default as there is no justification for the Surety to act in this situation.

2)      When the Surety is not convinced that the contractor is in default. The situation often arises where a contractor refuses to do certain work they feel is not within the scope of the contract, and the Obligee believes that it is. This is a dispute which should be resolved via form mediators, arbitrators or if need be, the Courts.

3)      When the Obligee has not fulfilled the contractual obligations. Eg. when the Obligee has failed to make payments, contractually due.

4)      When the Obligee has acted in a manner prejudicial to the Surety. Eg. When the 3 conditions precedent to invoking the performance bond had been fulfilled,  however where an Obligee has made payments in advance of work having been completed and there is no provision in the contract for such payments.