How Does Obligee Work ?

Waaaa?! Is this merely another dull bond sort, or is there a Booby Trap, an elaborate attempt to get an edge within the surety?

Every bonding firm has their own regular Performance and Payment Bond forms. For us, we would rather utilize the AIA A-312 unmodified P&P bond. This is a nicely balanced, broadly accepted type. Whenever we get a unique bond form, we have to examine it carefully. Why did the obligee invest the time and cash to invent this? There have to be several edges – to them.

Last week we received a obligee’s compulsory bond type on a personal contract and a crucial phrase is mentioned previously. Our customer is your GC / prime builder. At times the exceptional bond forms aren’t that bad. Let us pick apart this one. Perhaps you’ll encounter it a time.

This terminology is extremely important since it concerns the Obligee’s duty under the contract. For your Obligee to be eligible to create a performance bond claim, they need to meet their end of the deal, and that’s to PAY for the job. Can be a bond claim because of lack of functionality reasonable when the Obligee has neglected to pay the builder? Certainly not! They can not do the job at no cost.

What are the consequences of this wording in that bond form? Let us use the A-312 for a benchmark. (Owner signifies Obligee) It states:

Pretty simple. In the event the owner fails to cover the job, subsequently makes a bond claim, the surety has an proper reason to deny the claim. Just just how can this operate in the Booby Trap Bond? Rather than the convoluted lawyer speak, let us flip it into plain English. It states…

Requirements for collapse of this Obligee:

Neglected to announce the Contractor is in default (a official written statement) and,
There has to be an unremedied or unwaived failure to cover the Contractor the Obligee hasn’t contested
Ugh… that last part. Assume that in each scenario, the Obligee will contest an allegation they’ve failed. When they perform, the surety doesn’t have any claim defense even when the contractor hasn’t yet been paid.
What a snare for the unwary bond underwriter! But people would know…

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