Construction Today - July 2016 - 110

NY/NJ FOCUS

By Jacqueline Greenberg Vogt

DEALING WITH

Contractor Termination

T

he owner of a troubled project has
just terminated its general contractor and called upon the contractor's
surety to complete the work. The
surety responds affirmatively, but proposes
that the owner and the surety enter into a
takeover agreement. For the owner, entering
into a takeover agreement with the surety
will govern their relationship and provide a
road map for the completion of the project.
The plain language of a performance bond
requires the surety to take over a project
and arrange for the completion of the work
in the event of a contractor termination.
The bond typically states that the surety's
obligation under the bond arises when the
owner notifies the contractor and the surety
that the owner is considering declaring the

110

CONSTRUCTION-TODAY.COM JULY 2016

contractor in default; the owner has actually declared the contractor
in default and formally terminated the contractor, and the owner has
agreed to pay the balance of the contract price to the surety.
There are a number of factors to consider before the owner
enters into a takeover agreement. On the "pro" side, in the course
of negotiating the takeover agreement, the owner can require
the surety to confirm the contractor's default and affirm that the
surety is bound by the contract documents. The agreement should
include statements confirming that performance deficiencies
existed and setting forth the specific reasons for the default and
termination. Such provisions lay a good foundation for estopping
the surety from being able to later claim that the contractor was
improperly defaulted or terminated.
Entering into a takeover agreement will require the owner and surety to examine and agree upon the remaining scope of work. The surety
will typically hire a construction consultant to review the work in place,
compare it to the specifications and identify the scope. The owner then
has the opportunity to agree or disagree with the surety's evaluation


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Table of Contents for the Digital Edition of Construction Today - July 2016

Contents
Construction Today - July 2016 - Cover1
Construction Today - July 2016 - Cover2
Construction Today - July 2016 - 1
Construction Today - July 2016 - Contents
Construction Today - July 2016 - 3
Construction Today - July 2016 - 4
Construction Today - July 2016 - 5
Construction Today - July 2016 - 6
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Construction Today - July 2016 - Cover3
Construction Today - July 2016 - Cover4
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