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Performance Bond Claims

The performance bond’s purpose is to guarantee a contractor’s performance of a construction contract. There are numerous ways an owner can make a claim on a performance bond. For example, if a contractor goes bankrupt during construction and fails to complete a project, the owner can assert a claim against the bond. Also, if a contractor defaults on the contract and is subsequently terminated, the owner can assert a claim against the bond. Most common is a situation where there are alleged construction defects, particularly latent defects (a defect that could not be discovered by a reasonably thorough inspection). In these situations, an owner can assert a claim against the bond.

Presumably, the advantage of a performance bonds is that the contract’s performance is guaranteed by a solvent surety (insurance company). These claims are subject to a five-year statute of limitations. In Federal Ins. Co. v. Southwest Retirement Center, Inc., the Florida Supreme Court held that the statute of limitations on a performance bond in a case involving latent defects accrues (begins to run) “on the date of acceptance of the project as having been completed according to terms and conditions set out in the construction contract.” 707 So. 2d 1119, 1121 (Fla. 1998. Therefore, the statute of limitations begins to run on this date and expires after five years, irrespective of when the defect was discovered. Accordingly, when and whether the statute of limitations accrues (begins to run) on a performance bond claim involves a factual analysis and a thorough review of the construction contract. It is important to discuss these issues with a Florida construction lawyer who is knowledgeable in these areas and can guide you in the right direction.

Salas Law Firm at 954-315-1115, if you are an owner, developer contractor, subcontractor or supplier involved in a public or private construction project, and would like to know more about your rights and/or obligations under a payment or performance bond.

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