How to Collect Performance Bond Funds
A performance bond, sometimes referred to as a contract bond, is just one of the many forms of construction bonds used in development projects. They serve as a guarantee on the contractor’s behalf that the construction project will be completed in accordance with the agreed-upon terms and conditions. They are obtained by the contractor, and money put into the bond can only be returned to them upon completion of the project.
Developers often use performance bonds as a way to protect their investment. If a contractor fails to complete a project, the developer can then file a claim against the bond to recoup their losses. Should the claim be deemed valid, the surety company responsible for issuing the bond will require the contractor to compensate them.
However, should the contractor complete the job while meeting all of the necessary specifications and avoid any claims made on the bond by the developer, they may then collect money from it.
Making a Claim Against a Performance Bond
Like any construction bond, the bond obligee, in this instance the developer, is entitled to make a claim if they feel that the contract terms were not fulfilled by the bond principal (the contractor). In the case of a performance bond, this is often due to a contractor being unable to finish the project.
When a claim is made, the surety company that issued the bond will conduct an investigation in order to determine if both the obligee and principal have fulfilled their ends of the deal. From there, they will decide whether the claim is valid. They do this by ensuring that three conditions have been met:
- The obligee has submitted, in writing, an official claim that the principal has violated the terms of their agreement.
- The principal has indeed violated these terms.
- The obligee has lived up to their end of the agreement.
If the claim is found to be valid under these conditions, the surety company then has four different ways of handling the matter.
- They can attempt to remedy the situation so that the obligee withdraws their claim and construction may continue.
- They can take control from the contractor and make sure the project is finished under a new contract between the surety company and obligee.
- They can replace the contractor with another and allow the new contractor to finish the work under the same terms.
- They can pay the obligee the amount required to finish the project or the bond’s worth, whichever is less.
Steps to Collecting on a Performance Bond as a Contractor When the Job Is Finished
Collecting on a performance bond when the job is done may seem like a simple enough task at first, but it’s easy for the small things to fall through the cracks, especially when it comes to the paperwork. This is one of the many reasons ConstructionDisputes.com offers its users a digital document center to help keep everything in order.
Let’s take a look at the step-by-step process to collecting money on your performance bond:
- Review the Terms: Before a contractor can collect on a performance bond, it’s important to ensure that the completed project meets all of the terms and conditions in the contract. If the project fails to meet the agreed-upon specifications, payment may be withheld.
- Get a Signature and/or Receipt: It’s crucial that you obtain verification from the client that the project has met all necessary standards before collecting payment. This can be done by having them provide a signed certificate of completion or receipt for goods and services rendered. For larger projects, this may require a legal evaluation to take place to ensure that the contract has been fulfilled.
- Meet With the Client at the Bank/Broker: The next step in receiving your performance bond payment is to hold a meeting with the client at the insurance broker/bank responsible for the bond. During this meeting, you can request a release of the bond and will be given all of the required paperwork to fill out.
- Collect Payment: Once you’ve met with the client and filled out all of the necessary paperwork, the only step left is to receive the payment. This is generally offered as a wire transfer or in the form of a cashier’s check.
How to Claim a Performance Bond Payment With Help From ConstructionDisputes.com
ConstructionDisputes.com’s online communication hub is here to help those in the construction field learn not just how to claim a performance bond payment but how to track its progress. With helpful resources like our experienced bond claim specialists, communication services, and bond claim application form, we’re here to help guide you every step of the way. We also provide our users with a digital document center to help them organize and file all of the necessary paperwork associated with a project. You worked hard on the construction site: You shouldn’t have to work hard for your payment, too! Contact us today and let us work for you.