Page 332 - TCDB combined Book

Chapter 6 MANAGEMENT 311

Performance Bond:

Performance Bonds are issued to an owner to cover the possible default of a Prime
Contractor. Should the Prime Contractor fail to perform or default, the Owner can have the work
completed by others based on the terms of the Performance Bond. Remember that the Bonding
Company will have full recourse against the Prime Contractor for any losses incurred when
completing a defaulted Contract. Avoid Project Bonding requirements calling for long term
Maintenance Clauses exceeding the one-year standard term.

Labor and Material Payment Bond:

The purpose of a Labor and Material Payment Bond is to guarantee the Prime Contractor
will pay Subcontractors’ and Suppliers’. Requesting bonding from your major subcontractors and
suppliers should be considered to avoid situations that can make you responsible for claims by
labor and material providers working directly for your subcontractors.

All claims requiring payment by the Bonding Company will be pursued for reimbursement
under the terms of any Signed Agreement. These Labor and Material Payment Bond projects
should have all payables recorded on an individual project basis.

When acting as a Prime-Subcontractor on projects with no lien privileges, ensure there is a
L.&M.P. Bond to cover your payment. Obtain a copy of this Bond and the formal Contract
between the Owner and Prime Contractor.

On "Completion Contracts" covering projects taken over by a Bonding Company ensure
that a new L.&M.P. Bond has been issued before proceeding with any work as a Prime
Contractor. When requested to carry out work on completion contracts, where you will not be the
Prime Contractor, advise the Bonding Company directly of your involvement and obtain a
Payment Agreement. Legal advice should always be considered before signing any "Completion
Contracts".