Publications
Killer Bond Forms and Contract Provisions--A Series
Construction Practices Newsletter
This is the fourth in a series setting forth examples of new bond and contract provisions and providing commentary as to their meaning and impact. Last edition, we discussed the following bond term:
Penal Sum Increases With Change Orders
Any increase in the contract amount shall automatically result in a corresponding increase in the penal amount of the bond without notice to or consent from surety, such notice and consent being hereby waived.
Add to that a waiver of all changes provisions such as the following:
Waiver of All Changes
The surety hereby waives notice of any change, including changes of time, to the construction contract or to related subcontracts, purchase orders and other obligations.
The potential result of these two provisions is an unlimited bond amount for the surety. At least one trial court has read these two provisions together to conclude that the court has combined the provision that says that the bond amount increases with each change order with the provision that the surety waives notice of any change. Thus, even if the change order is many times larger than the original contract price, the surety arguably waived notice and agreed that the penal sum would increase accordingly.
Waiver of All Changes — Another Version
Surety is familiar with all of the terms and conditions of the contract documents and waives the right of special notification of any changes or modifications to the contract, or of extensions of time, or of decreased or increased work, or of cancellation of the contract, or of any other act or acts by the obligee or any of its authorized agents.
The key portion is "of any other act or acts by the obligee or any of its authorized agents." Obligees could argue that the surety has waived all defenses such as wrongful termination, overpayment or failure to mitigate damages. Accordingly, there is a question of whether the provision would constitute a waiver of an undefined future occurrence. Nonetheless, it is a problematic clause that could cause a surety pause if not to reject the provision.
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