Yes it can, at least in Nebraska, if the bond language allows it. The Nebraska District Court, in Dobson Brothers Construction v. Ratliff, recently ruled that the language of the bond may allow the general contractor to recover the expense of having to complete a subcontractor’s work under both the performance and payment bonds.
In this case, the general contractor, Dobson Brothers, hired Ratliff to install sewer and water lines on an Oklahoma Department of Roads project. Ratliff obtained payment and performance bonds on the project. The payment bond required the bonding company to indemnify Dobson, the general contractor, from all loss, liability, costs and damages incurred by Dobson in connection with Ratliff’s work.
Dobson terminated Ratliff’s contract and completed the work with its own. Dobson then made a claim on the bonds for $2.2 million. The bonding company argued that Dobson’s claim under the payment bond was improper because the general contractor was not a proper claimant. The bonding company also argued that the general contractor failed to provide proper notice of its claim under the performance bond.
The court ruled in favor of the general contractor under the payment bond, holding that nothing in the payment bond barred Dobson’s claim. Specifically, the bond did not require a claimant to have a direct subcontract or supply contract with the subcontractor to make a claim on the bond. The court refused to rule on the performance bond claim, finding that the parties had presented conflicting evidence on whether the general contractor had provided proper notice of its claim and whether the bonding company had waived that claim. So, this final issue would be heard by a jury.
The lessons from this care are to read the bond to determine the breadth of its coverage and make sure you comply with the notice provisions. Not surprisingly, bond claims can be difficult and knowing the requirements of your bond before problems arise will pay dividends in the end.