Fidelity & Surety Law Committee Newsletter - Winter 2021
The Surety’s Defenses To Unfavorable Provisions In A Bonded Contract by Caralisa Connell - The construction surety is no stranger to finding itself in unfavorable positions due to the actions of its principal. The surety’s involvement in most construction projects is delayed until some issue arises warranting notification to the surety—whether in the form of notice of default under a performance bond or a claim against a payment bond—as a direct result of the actions of its principal. The surety is rarely involvedin negotiating or otherwise amending underlying construction contracts. Rather,the construction surety issues bonds on the underlying contract as negotiated andagreed to by its principal. The surety only occasionally has the opportunity during the underwriting process to review and analyze the principal’s contract with a project owner or higher-tiered contractor, and it is uncommon for the surety to put eyes on the principal’s subsequent subcontracts or purchase orders. Thus, bonded contracts may include provisions that are unfavorable to the surety.
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