Thoughts on the AIA A312-2010

As most of you know, a new version of the AIA A312 performance bond came out in 2010 "replacing" the 1983 version of the A312.  As we go into two plus years of the A312-2010 I thought it was a good time to point out some of the "key features" of the A312.

Time to Sue


If you plan to bring an action to enforce your rights under the AIA A312-2010, Section 11 of the bond provides that you must do so:

• Within two (2) years after a declaration of contractor's default; or
• Within two (2) years after the contractor stopped working; or
• Within two (2) years after the surety refuses or fails to perform its obligations under the bond

Note that your time to sue will run from the first event above. 

Failure to Provide Notice

Under New York case law, the failure of the Owner to comply with conditions precedent in a performance bonds has traditionally been considered a material failure and has prohibited recovery under the bond.  However, the A312-2010 specifically states in Section 4 that failure to comply with the bond's notice requirements shall not shall not constitute failure to comply with a condition precedent and shall not release the surety from its obligations unless prejudice to the surety can be shown.  Of course, I would not suggest that any of you test the surety's ability to establish prejudice - keep your notice timely and comply with the notice provisions of the bond.  

The Surety's Default

If the surety defaults and fails to take action as required under the bond, the Owner may, after providing the surety with seven (7) days written notice demanding performance under the bond, enforce any remedy available to it under the bond.  In other words, if you plan on suing the surety for non-performance, you must first given them seven (7) days written notice demanding performance.  This provision (Section 6) would be a condition precedent to suit.  

The Surety's Options

The surety, after receiving notice of the claim, may:

• Complete the contract;
• With the Owner's consent, arrange for the original contractor to complete the contract; 
• Obtain bids and arrange for others to complete the contract and pay the Owner any additional costs above the original contract amount that it incurs in completing the contract through others; 
• Waive its right to perform and complete, notify the Owner of its liability under the bond and pay the Owner; or
• Deny liability to act, in whole or in part, notifying the Owner of the reasons for such decision.  

Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC and practices primarily in the area of construction law.  He can be reached at vtp@kushnicklaw.com or (631) 752-7100.  You can also visit our firm site at www.nyconstructionlaw.com  

Thoughts on the AIA A312-2010

As most of you know, a new version of the AIA A312 performance bond came out in 2010 "replacing" the 1983 version of the A312.  As we enter year two of the A312-2010 I thought it was a good time to point out some of the "key features" of the A312.

Time to Sue


If you plan to bring an action to enforce your rights under the AIA A312-2010, Section 11 of the bond provides that you must do so:

• Within two (2) years after a declaration of contractor's default; or
• Within two (2) years after the contractor stopped working; or
• Within two (2) years after the surety refuses or fails to perform its obligations under the bond

Note that your time to sue will run from the first event above. 

Failure to Provide Notice

Under New York case law, the failure of the Owner to comply with conditions precedent in a performance bonds has traditionally been considered a material failure and has prohibited recovery under the bond.  However, the A312-2010 specifically states in Section 4 that failure to comply with the bond's notice requirements shall not shall not constitute failure to comply with a condition precedent and shall not release the surety from its obligations unless prejudice to the surety can be shown.  Of course, I would not suggest that any of you test the surety's ability to establish prejudice - keep your notice timely and comply with the notice provisions of the bond.  

The Surety's Default

If the surety defaults and fails to take action as required under the bond, the Owner may, after providing the surety with seven (7) days written notice demanding performance under the bond, enforce any remedy available to it under the bond.  In other words, if you plan on suing the surety for non-performance, you must first given them seven (7) days written notice demanding performance.  This provision (Section 6) would be a condition precedent to suit.  

The Surety's Options

The surety, after receiving notice of the claim, may:

• Complete the contract;
• With the Owner's consent, arrange for the original contractor to complete the contract; 
• Obtain bids and arrange for others to complete the contract and pay the Owner any additional costs above the original contract amount that it incurs in completing the contract through others; 
• Waive its right to perform and complete, notify the Owner of its liability under the bond and pay the Owner; or
• Deny liability to act, in whole or in part, notifying the Owner of the reasons for such decision.  

Vincent T. Pallaci is a partner in the New York law firm of Kushnick Pallaci, PLLC and practices primarily in the area of construction law.  He can be reached at vtp@kushnicklaw.com or (631) 752-7100.

Court rejects late submission of payment bond claim

Pursuant to State Finance Law Section 137:  "a person having a direct contractual relationship with a subcontractor of the contractor furnishing the payment bond but no contractual relationship express or implied with such contractor shall not have a right of action upon the bond unless he [or she] shall [give] written notice to such contractor within one hundred twenty days from the date on which the last of the labor was performed or the last of the material was furnished, for which his [or her] claim is made." In Brer-Four Trans. Corp. v. Zurich America Ins. Co. the general contractor hired a subcontractor to remove excavated materials from a site.  The subcontractor (S1) then hired another contractor to assist it with the removal (S2).  S2 claimed that it was not paid in full and brought a claim against Zurich (the surety that issued the payment bond to the GC pursuant to State Finance Law Section 137).  Zurich moved to dismiss claiming that S2 failed to comply with State Finance Law Section 137 by notifying the GC of the claim within 120 days from the date on which the last of the labor was performed. 

While the trial court originally denied the motion, the Appellate Division revered and found that since S2 did not submit the bond claim to the general contractor within 120 days the claim was barred under State Finance Law Section 137.  The lesson to be learned is to submit your bond claim on time, in writing and not to wait until the last day to do so.  Also, you should keep in mind that some bonds contain provisions requiring notice within less than the 120 days provided by State Finance Law Section 137.  The AIA Payment Bond (AIA A 312) for example, has a provision requiring notice to be submitted within sixty days.  When in doubt, read the bond in full and contact a construction attorney to find out what deadlines apply to your particular claim. 


Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com