Secrets of Bonding 125: When to Call It Quits

Secrets of Bonding 125 When to Call It Quits

Contracts for construction can be ended at any time by either side in certain conditions. Let’s look at it from the perspective of the contractor from a view.

Contracts with federal agencies make it straightforward for the federal government to terminate the project. A clause called the “termination to facilitate” clause clarifies how the project may be removed (with no blame on the contracting party) and offers the method of paying for the work already completed. Other private and public contracts could also include this clause.

Sometimes, it is the contractor that is motivated to complete the project before the deadline. In these cases, it is essential to be aware of the best way and time to move on.

The Disputes Clause

“The Contractor shall proceed diligently in the performance of this contract until the final resolution of any claim for relief or appeal or other action that arises under the contract and shall comply with any decision made by the Contracting Officer.”

As part of Federal contracts, the clause says you are required to continue to work even if you are facing the possibility of a dispute. This ensures that the contractor does not keep the project in limbo during the time that the argument is under review.

Other contracts, both private and public, might contain provisions concerning unresolvable disputes, so it is crucial for you to…

Take a look at the Contract.

Contractors should only end an undertaking only when they have the legal basis to quit a project if they have a legal right to do so. You must read the contract thoroughly and, together with your attorney, determine an option.

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A clause relating to Unresolvable Disagreements could permit the contractor to cease work. A good example would be problems with engineering that make it impossible to continue.

Stop Work if you are unable to pay

In such instances, the contractor needs to make a written notice of the payment due and provide a period of time to recover the funds. Specific contracts require that another notification is given prior to the time work is stopped.

Since nonpayment can constitute a breach of contract, it could be just to stop work. However, states have different laws regarding this issue. A lawyer can assist in determining whether such action is appropriate.

Surety Bonds

If there is a Performance and Payment Bond that covers the contract, it could play a crucial role.

General Contractors should inform their insurance company of any dispute. The stoppage of work could result in the filing of a Performance Bond claim. This could limit the availability of bonds for projects that require them. The surety company will need to know the situation and give advice to the attorney and contractor.

Subcontractors face the same problems in the event that they’ve bonded their subcontract. Furthermore, contracts that include “pay after payment” language could be a reason for the non-payment by the GC, which is another reason to review the contract.

A benefit for subcontractors could be a P&P bond over the one filed with the contractor general. This Payment Bond is available for claims by suppliers and subcontractors. It is an effective instrument to safeguard subcontractors. Even a letter sent to the GC in which you threaten to file a lawsuit against a payment could shake loose the cash in many instances.

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The decision to stop work is an essential option to the company if it is legal. If a contractor is considering stopping work, they must be mindful that they could be accused of breaching the contract by themselves. They must also consider the more significant circumstance of the party that is not paying, for example, a potential bankruptcy.

The most effective method is to review contracts prior to signing and then negotiate the addition of language that permits work to stop under certain conditions. The aim is to obtain the agreement and limit the potential risks.

Steve Golia is an experienced contractor who offers bid and performance bonding for contractors. Over the past 30 years, his expertise has been in the field of solving issues with bonds for contractors and helping them out when others had failed.

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