Legal Memorandum: Claim on a Surety Performance Bond

Issue: What steps must a company follow in order to assert a claim on a surety performance bond?

Area of Law: Business Organizations & Contracts
Keywords: Surety performance bond; Federally funded, locally funded, or privately funded
Jurisdiction: Federal, Minnesota
Cited Cases: 310 Minn. 140; 353 N.W.2d 233; 342 N.W.2d 135; 245 N.W.2d 866
Cited Statutes: 40 U.S.C. §§ 3131—3134; Minn. Stat. § 574.26, subd. 2
Date: 12/01/2011

The process for making a claim against a contractor’s bond varies depending on whether the project is federally funded, locally funded, or privately funded.  The Federal Miller Act, 40 U.S.C. §§ 3131—3134, and the “Little Miller Acts,” as the comparable state laws are called, require that all contractors on publicly funded, or governmental, construction projects furnish both payment and performance bonds at the outset of each project.  These bonds ensure that the work is completed and that subcontractors and suppliers, including lower-tier subcontractors that have no contract with the general contractor, are paid for their contributions.  If they are not, they will have a claim against the contractor’s bond.  

Even though no statute mandates them, payment and performance bonds are routinely required even on large private projects to ensure that subcontractors, sub-subcontractors, and suppliers are paid.  Although there is some authority suggesting that unpaid suppliers may be third-party beneficiaries of the contractor’s performance bond on a private construction project, there is also some indication that this may not always be true in Minnesota.  See Cretex Cos. v. Constr. Leaders, Inc., 342 N.W.2d 135 (Minn. 1984) (holding that unpaid suppliers on a private construction project were not intended third-party beneficiaries of the defaulting contractor’s performance bond and were thus not entitled to recover against the surety).  The issue basically boils down to one of intent; that is, if it appears from the language of the bond itself that the parties intended the suppliers to be protected […]

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