Change Orders and P&P Bonds

[JWEvans]

I have a contractor that is telling me that he has to be paid for an increase to his P&P bonds with each Change Order; even the smallest of them (this is public work so the bond is required). In 15 years of working in the public sphere, I have never had this happen. It is my understanding that as long as the amount of work pending does not exceed the value of their current bond, an increase in the P&P bonds is not needed since the surety is not accumulating additional risk. Another way of putting this is as follows: if the initial value of a project is $1,000,000 and the GC has been paid $250,000 (and has paid his subs timely), then the project could accumulate another $250,000 increase in value before additional bonding is needed.

This individual is telling me that at the end of the project they have to tell the surety the total final construction value and they will have to pay the surety the difference between what they initially bonded for and the final amount.

Is mine a reasonable interpretation or just wishful thinking?

[Surety Queen]

Originally Posted by JWEvans

I have a contractor that is telling me that he has to be paid for an increase to his P&P bonds with each Change Order; even the smallest of them (this is public work so the bond is required). In 15 years of working in the public sphere, I have never had this happen. It is my understanding that as long as the amount of work pending does not exceed the value of their current bond, an increase in the P&P bonds is not needed since the surety is not accumulating additional risk. Another way of putting this is as follows: if the initial value of a project is $1,000,000 and the GC has been paid $250,000 (and has paid his subs timely), then the project could accumulate another $250,000 increase in value before additional bonding is needed.

This individual is telling me that at the end of the project they have to tell the surety the total final construction value and they will have to pay the surety the difference between what they initially bonded for and the final amount.

Is mine a reasonable interpretation or just wishful thinking?

At the end of a bonded project, we do a General Status Inquiry with the Obligee to determine the completion date of the bond as well as the total contract amount - including change orders. At that time, we would bill the Contractor for the additional amount to cover the change orders. Don't really think it's necessary for the contractor to expect payment everytime there is a change order - better to wait until the end of the project.