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Non-Construction Performance Obligations

Non-Construction Performance Obligations

In surety we’re very familiar with bonding projects involving construction, but sometimes we’re asked to provide surety support for a contract that doesn’t involve actual construction. The obligation may be for providing a service or product, such as generators, lighting. Some sureties look at these as a commercial surety obligation and you’ll need to work with a commercial surety underwriter. Here at Merchants Bonding Company we consider it a contract surety obligation so you’ll be working with your contract underwriter on these submissions. 

Non-construction performance obligations can often be challenging since it can be hard to define what constitutes a default. Some contracts may outline specifics as to what is expected by the obligee, while others will be quite vague. Both situations can be problematic, but being able to define the expectations objectively makes it is easier to assess the corresponding risk to the principal and the surety. 

When reviewing these types of obligations we’ll look for a copy of the contract and/or RFP. The review of these documents will be similar to those for reviewing construction documents. The underwriter will look to determine the scope of the product/services to be provided, what constitutes a default, default termination provisions and any damage provisions including liquidated, consequential and/or actual damages. We’ll also look at the duration of the obligation and renewal options, if any. Often times the documents will include a copy of the bid and performance bonds that will need to be reviewed as well and any onerous or objectionable provisions identified and addressed. Lacking specific bid and/or performance bonds, generic bond forms may need to be modified or new forms manuscripted. While certainly not as common as performance and payment obligations for construction projects, Merchants Bonding certainly has the experience and knowledge to help our appointed agents in underwriting non-construction types of risks.