Bonding Breakdown - A Primer on New York Construction Bonds

John Caravella Esq.
August 16, 2012 — 1,351 views  

Bonds are a common requirement in New York construction. Bonds are a source of protection for the contractors, subcontractors and suppliers working under them or they can provide protection for the owner having the work performed. Often, however, there are some basic misconceptions with respect to bonds and insurance.

Although each has its place in the construction process, the purpose and intent behind bonds and insurance are quite different. With respect to insurance, the insurer assumes covered risks within limits. Bonds, however, guarantee to extend credit upon the occurance of covered events, within limits. The insurer charges its premium fee based on its calculation of risk exposure spread across all insured. The bonding company is paid its fee for guaranteeing a line of credit on behalf of its principal. The bonding company will issue its bond only when it has been assured that the principal is capable of performing the contract work and/or is able to repay any losses the bonding company might experience. Unlike insurance, the bonding company will be seeking recovery of any losses suffered under the bond.

Bonds found in typical New York construction include:

Performance Bonds Performance bonds typically cover the risk an owner might suffer should its contractor abandon or otherwise fail to complete its contracted work. Typically the contractor is required to provide the owner with a performance bond. In some situations a contractor may also require a performance bond from subcontractors. This type of bond secures the obligation to perform under the contract, and may be liable for the amount needed to correct and complete the remaining work.

Payment Bonds Payment bonds typically cover the risk an owner might suffer should its contractor fail to remit timely payments to its subcontractors working on the project. Unpaid subcontractors on the owner’s project greatly increases the owner's exposure to the filing of liens, litigation and work slowdowns. These bonds protect not only the property owner but also the subcontractors and suppliers working on the project in the event contractor fails to provide proper payment.

Subcontractors would be well served in requesting from the contractor copies of all bonds issued on the project.

For contractors who may need to make claim under a New York payment bond, time may be of the essence. Formalities of proper claim filing procedures and filing deadlines apply for the claim to be valid.

John Caravella Esq.

The Law Offices of John Caravella, P.C.

Mr. Caravella, a construction attorney admitted to practice in all NY and FL state courts, represents architects, contractors, sub-contractors, engineers & owners in all phases of construction. He has education & working experience in architecture.