Construction is a risky business. Construction contracting is an exercise in dealing with risks by allocating them among the various project participants. Most construction contracts contain terms and conditions that shift the risk of nonpayment from the owner downstream to the subcontractor.
Historically, subcontractors look to payment surety bonds as a source of credit for the contractor to ensure that the subcontractor gets paid for its work under the subcontract. Sureties on these bonds are typically entitled to avail themselves of all of the defenses of the bonded principal, including subcontract terms and conditions that may limit or restrict a subcontractor’s ability to recover for its work. In evaluating the enforceability of such defenses by a surety on public projects, parties need to consider applicable statutes requiring such bonds in the first instance.
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