Salamirad Morrow | Attorneys at Law

Recent Result: Sureties Can Expect Owners To Properly Administer Bonded Contracts

November 19, 2015 | Posted by Jody Salamirad | Category: NewsNews Page - News

Can a surety on a public works project affirmatively recover funds from an owner based on that owner’s failure to properly administer the bonded contract?  Recently, with the assistance of Ali Salamirad and Teresa Polk, SMTD’s client successfully resolved just such a claim.  The surety resolved multiple payment bond claims after its principal completed the project but failed to pay its subcontractors and suppliers.  The surety determined that the agency released contract funds to the principal even after the surety demanded that the owner withhold funds to resolve the unpaid claims.  The owner reasoned that it no longer had a right to withhold the funds after the statute of limitations had run for the time in which subcontractors and suppliers could file an action to perfect the stop notices.

Relying on the contract clause requiring that the contractor furnish the owner with statutory waivers and releases from all of its subcontractors and suppliers as a condition of payment, the surety successfully argued that the owner’s failure to require the releases as evidence of the contractor’s payment to subcontractors and suppliers was a breach of the owner’s obligation to the surety that resulted in damages; and specifically, in the form of bond claims, which would never have materialized had the owner administered the contract properly.   Ultimately, the surety negotiated a resolution and recovery, which serves as a good reminder that sureties should be entitled to expect obligees to administer their bonded contracts properly, particularly when it comes to payment clauses and conditions.

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Recent Result: Sureties Can Expect Owners To Properly Administer Bonded Contracts

November 19, 2015 | Posted by Jody Salamirad | Category: NewsNews Page - News

Can a surety on a public works project affirmatively recover funds from an owner based on that owner’s failure to properly administer the bonded contract?  Recently, with the assistance of Ali Salamirad and Teresa Polk, SMTD’s client successfully resolved just such a claim.  The surety resolved multiple payment bond claims after its principal completed the project but failed to pay its subcontractors and suppliers.  The surety determined that the agency released contract funds to the principal even after the surety demanded that the owner withhold funds to resolve the unpaid claims.  The owner reasoned that it no longer had a right to withhold the funds after the statute of limitations had run for the time in which subcontractors and suppliers could file an action to perfect the stop notices.

Relying on the contract clause requiring that the contractor furnish the owner with statutory waivers and releases from all of its subcontractors and suppliers as a condition of payment, the surety successfully argued that the owner’s failure to require the releases as evidence of the contractor’s payment to subcontractors and suppliers was a breach of the owner’s obligation to the surety that resulted in damages; and specifically, in the form of bond claims, which would never have materialized had the owner administered the contract properly.   Ultimately, the surety negotiated a resolution and recovery, which serves as a good reminder that sureties should be entitled to expect obligees to administer their bonded contracts properly, particularly when it comes to payment clauses and conditions.

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