Performance Bonds

Companies in the construction industry should understand performance bonds. Performance bonds differ in many ways from payment bonds. While payment bonds are designed to assure compensation to subcontractors and suppliers, performance bonds seek to secure completion of the project or award of damages to the owner for default by the general contractor.

Performance Bonds Defined

The parties to a performance bond consist of the following: (1) the principal (usually the general contractor), (2) the obligee (the owner), and (3) the surety. In some cases, a performance bond is required of a subcontractor, in which case the principal is the subcontractor and the obligee is the general contractor. Performance bonds are primarily designed to afford significant protection to the owner, while subcontractors and suppliers typically have no rights under such bonds.

Claims are brought by the obligee, when the principal has defaulted on its contract with the obligee - the obligee declares the principal to be in default and notifies the surety. Only then is surety required to act, since premature actions by the surety can result in litigation with the principal.

Actions upon Default

In the event of default by the principal, the surety has several options. It can permit the owner to finish the project and compensate the owner for damages. Or, the surety can finish the project through a new contractor. Or, it can finance the general contractor so the defaulting obligee can complete the contract. The choice depends upon the situation and the players.

Statute of Limitations

While the federal Miller Act states no specific time period within which suit must be brought against a surety, there are federal, state and local time limitations applicable to performance bonds. Virginia Code Section 11-59 requires actions against sureties on performance bonds be filed within one year after completion of the contract, including the expiration of all warranties and guarantees. If the action is for a breach of warranty or defect, then all cases must be filed within one year of discovery of the defect or breach of warranty.

Conclusion

In conclusion, individuals in the construction industry should keep in mind that the rules and principles, which govern the operation of these bonds, are sometimes peculiar to the bonds themselves and the statutes under which they are provided. Therefore, it is important to have a good understanding of the terms of your bond, any applicable statutes, your contract and the facts.

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The above is not meant to replace legal counsel. If you'd like to speak with one of our lawyers, please contact Gross & Romanick by calling 703-273-1400 or by filling out our online information request form.

At-Will Employment: The Employee Handbook

WHAT CONSTITUTES AN EMPLOYEE HANDBOOK: An employee handbook can consist of a two page memo informing your employees of specific rules regarding a certain aspect of their employment or it can be a three volume epic covering every aspect of employee behavior, benefits and duties.

DOES A HANDBOOK CREATE A CONTRACT? Not under Virginia law unless there is a written or oral agreement referencing the handbook. However, there are certain conditions in which a handbook or manual can be relied on to establish an employee's rights against an employer. These conditions are: 1) when the wording appears to take the relationship out of an at-will context by fixing the duration of the term of employment, and 2) if its terms constitute a binding promise. An employer may be unhappy to find that a jury or a judge will make the final decision as to whether the wording of the handbook changed the relationship from at-will employment to something more binding.

ACTION ADVICE: Always have your employee handbooks or handbook modifications written by an attorney. Make sure that the handbook states that the terms of employment are "at will". Avoid vague language that may promise benefits that the company does not wish to provide. When discussing disciplinary procedures, give the employer broad discretion to impose probation, demotion and termination. Have employees sign for receipt of the handbook. Finally, follow the handbook when making decisions about employee benefits and discipline.

The above is not meant to replace legal counsel. If you'd like to speak to one of Gross & Romanick's lawyers, call us today at 703-273-1400 or fill out our Online Information Request form.