Construction Bonds and Arbitration

A large percentage of construction contracts require arbitration if there is a dispute between the owner, general contractor and/or a subcontractor.  At the same time, many general contractors have payment and performance bonds in place for the construction project which do not have mandatory arbitration provisions.  If the owner or subcontractor seeks to call on the payment or performance bond, must the parties resolve the bond claim in arbitration? At the most basic legal level, arbitration is only available with the consent of the parties to the dispute.  Therefore, a court cannot compel a reluctant party to arbitrate a dispute absent a clear agreement requiring arbitration.  Typically, this agreement takes the form of a written contract between the parties to the dispute, whether signed before or after the dispute originated.  Bond claims, however, take a somewhat different form.

Consider the usual scenario for a construction bond.  A contractor enters into a contract with a bonding company for two purposes: (1) to ensure the contractor’s performance of the construction job to the owner of the property (a performance bond); and (2) to ensure payment to  subcontractors (a payment bond).  If a subcontractor is not paid for their work, they are permitted to pursue an action against the bonding company for payment as a “a third party beneficiary”.  If the subcontractor is successful in their claim, then the bonding company will pay the claim and pursue the prime contractor for the amount paid.  Notice that the subcontractor is permitted to claim against the bonding company despite the fact that the subcontractor’s agreement is with the prime contractor, not the bonding company. Most bonding agreements contain language that specifies how an individual or an entity becomes a “claimant” to the bond. 

Construction Law At Gross & Romanick

Gross & Romanick, P.C., located in Northern Virginia represents contractors, owners and suppliers in Virginia, Maryland and Washington, DC. Our goal is to find solutions for our clients through understanding and respect for their business concerns. We strive to keep our clients out of court with proper advice, timely action and effective contracts. When necessary, our lawyers draw upon their very significant experience in construction litigation in state and federal courts, as well as arbitration.

Some of the areas of law in which we can help are:

Business Formation
Avoid exposure of your personal assets by conducting business as a Corporation or Limited Liability Company. We have organized simple and complex business structures. After formation, we can assist with matters from annual Board of Directors meetings to complex corporate reorganizations.

Mechanic Lien's
Our firm has represented claimants in very large mechanic lien cases. In addition, we understand surety law and Miller Act Claims.

Contracts
We can prepare, review and advice on a broad range of contracts from Construction Contracts to Joint Check Agreements. Because we understand the construction industry, our clients use us to negotiate terms and draft their agreements.

Credit Extension/Collections
From credit application through bank garnishment, we can help at every step to lessen your company's risk. We provide credit investigations, seminars and collections. Furthermore, our bankruptcy experience allows us to effectively pursue many debtors even after bankruptcy is filed.

Litigation
Our lawyers have represented companies in the construction industry in hundreds of cases in state and federal courts. These cases range from simple collections to complex breach of contract disputes.

Registered Agent
Edward Gross acts as registered agent for many corporations and limited liability entities. Included in the annual fee is assistance in preparing annual reports, as well as acceptance of legal service of process.

To speak to one of the lawyers at Gross & Romanick, call us today at 703-273-1400 or by filling out our online information request form.