Replacement Sub's Work Did Not Breach Performance Bond

Tuesday, July 03, 2018 6:43 am
July 2018 - Volume 40 Number 7

Surety Breach of Contract

Developers Surety & Indemnity Co. v. Archer W. Contractors., LLC, 2018 U.S. Dist. Lexis 76301 (M.D. FL May 7, 2018)

A surety was responsible for financing a replacement subcontractor due to the original sub’s faulty work---even though the prime contractor took unilateral action to make that replacement.

In February 2012, Archer Western Contractors, LLC (Archer) entered into a prime contract with the Florida Department of Transportation for construction work on a commuter rail transit station. Archer hired Prince Land Services, Inc. (Prince) to perform landscaping and irrigation work. Prince’s project performance was less than favorable, and Prince ended up defaulting on its subcontract with Archer. Subsequently, Archer engaged a replacement subcontractor to perform limited landscape services. Archer then made a $631,148 claim---the cost to replace Prince’s work---on the performance bond that Developers Surety and Indemnity Company (DSIC) had issued to Prince for the project. The surety refused to pay.

In court, DSIC charged Archer with breaching the bond by unilaterally taking action to replace Prince on the project and failing to provide the surety with sufficient time to mitigate damages. DSIC alleged that it had no obligation to Archer under the bond and that the bond was null and void.

Archer counterclaimed, arguing that DSCI was the party who breached the bond by failing to pay the costs incurred in completing Prince’s faulty work. Archer also asserted that both the subcontract and the bond gave it the right to hire a replacement sub. The court agreed with Archer and granted its motion for summary judgment.

Performance bond set timeline for cure---or replacement

The dispute related to Prince’s subcontract performance began in May 2012. On July 3, 2014, Archer notified Prince and DSIC, via a “Notice of Default” letter, of Prince’s numerous alleged failures of performance. The letter gave Prince 72 hours to cure the default or Archer would “take whatever steps it deems necessary to mitigate the damages caused by Prince’s default.”

Archer sent the bond claim to DSIC on July 10, 2014, well after the 72-hour window had expired. In response, DSIC notified Archer that the cla[..]