How a bond is actually called

A contractor has failed, or has abandoned the works, or has been terminated. There is a performance bond. The employer wants the money.

Read the bond first

Not the contract, the bond. It sets out who may demand, in what form, supported by what, and by when. Those requirements are usually strict and are usually construed strictly.

A demand that does not comply in form is commonly rejected outright, without regard to the merits, and by the time it is corrected the expiry date may have passed.

Establish the default properly

On a conditional bond, the employer must show the contractor is in breach. That usually means the contract has been validly terminated, which itself has a procedure with notices and periods that must be followed exactly.

A termination that was procedurally defective undermines the bond call built on it. The two stand or fall together.

Quantify the loss

The surety pays loss, up to the cap. So the employer needs a figure: the cost of completing the works, less what would have been paid to the original contractor, plus any other recoverable loss.

That figure usually cannot be finalised until completion is procured, which creates the practical difficulty that the loss is not fully known while the bond is still live.

The sequence that works

1. Confirm the bond is still in force, and diary the expiry immediately.
2. Read the demand requirements and prepare to meet them exactly.
3. Follow the contract’s termination procedure precisely, if terminating.
4. Notify the surety early, even before the loss is quantified, if the bond requires notice of default.
5. Assemble the loss: completion costs, defects, damages.
6. Serve the demand in the required form, with the required evidence.

Where calls fail

• Expiry passed while loss was being quantified.
• Notice of default not given within the period the bond required.
• Termination procedurally defective.
• Demand not in the prescribed form.
• Loss claimed on a basis the bond does not cover.

Get advice, early

This is one of the areas where a surveyor’s job is to assemble the commercial evidence and to bring in legal advice on the procedure. The sums are usually large, the requirements are technical, and the opportunity does not come round twice.