Monday, December 10, 2012

3 Tools to Enforce Contractor Performance

There are three primary tools available to public agencies that are used to enforce lack of compliance by contractors on public works construction projects.

Bid guaranty:  If the contractor who has been awarded a public works project fails to execute the contract (sign it), a public agency may be compensated through the contractor's bid guaranty that was submitted with the bid.  Some of the common forms of bid guaranties are bid bonds, cashier's checks, certified checks, personal money orders, or cash.  A bid guaranty is for a specific percentage of the bid amount, typically 5%.

Liquidated damages:  If the contractor does not complete the work in a timely manner, consistent with the number of days provided for in the contract, a public agency may assess liquidated damages against the contractor for every day that substantial completion of the project is delayed until final completion.  Liquidated damages are not a penalty and must be specified in the contract.  Substantial completion occurs when the agency has beneficial use and occupancy of the facility for its intended purpose, even if all of the punch list items or other administrative matters have not been completed or resolved.

Performance bond:  If the contractor does not satisfactorily complete the work, goes out of business, declares bankruptcy, or otherwise disappears and does not perform the work they contracted with the public agency to perform, a public agency may contact the bonding company (surety) that provided a performance bond.  Under the terms of a performance bond, the surety agrees to complete the work consistent with the contract by either providing funding to the contractor, obtaining a new contractor to complete the work, or pay the public agency the dollar amount of the performance bond for the agency to complete the work.

Mike Purdy's Public Contracting Blog 
© 2012 by Michael E. Purdy Associates, LLC

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