Owner using bonding company

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    Here is a question and answer about an owner using the bonding company, in another country:

    Dear sir,

    i would like to know about few items in the construction contract;\n\n1. in my country performance bond were imposed in all the contract document for construction works.This performance bond is about 5% of the total contract sum. Will be release once the contractor has completed their works satisfactorily and upon the issuance of Certificate of Making Good Defects (CMGD).

    The purposed of the performance bond is to make sure the Contractor doing their work properly and complete the works according to the Contract. if the contractor fails to fulfill their duty as required in the contract, the client\’s has the right to utilised the performance bond in full or partly.

    My question is..the Contractor had completed the works on scheduled and was given the CMGD\’s. Unfortunately, the client\’s has utilised the performance bond without any good reason.

    What type of action that can be use to solve this matter.



    Let me try to answer your question.

    The thing you wrote \”without any good reason\” is important here. If the contractor has completed the work on schedule, then why would an owner utilize the bond? It is a headache to everyone. And because the job was done by the contractor, and it was complete, on time, what is there left to build? Were there changes to the scope that the contractor did not want to do? Is that why? Regardless of the \”good or bad reason\” I am trying to understand what did the owner use the bonding company for on a finished job. If you can answer this, I can be of more help. What did the bond company actually do?

    The other reason that I can think of might be that the Owner may not be willing to pay the Contractor, so he is trying to build a case for himself by utilizing the bonding company, as if the Contractor was at default.

    In both cases, I am assuming that the thing you said \”for no good reason\” is 100% correct. You need to make sure on your end that indeed there was no good reason. Did the job experience delays because of you? Or did the Owner incur any extra costs because of the Contractors mistakes? If the answer to these two is no, then yes it sounds like the Owner was indeed utilizing the bonding company for no good reason. In this case you should first try to negotiate the situation with the Owner. Try to resolve it here definitely. Then comes arbitration. If all fails, and you want to pursue this further, yes you can go to court. But remember that you need to have all your documentation to prove yourself right. This includes everything from RFIs, submittals, contract, memos, emails, meeting minutes, photos, daily reports…. everything… They need to show that you did not cause any delay or cost increases therefore the Owner\’s utilizing the bonding company is not valid.

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