Expert: Ashish Gurav - 1/19/2012

Question
What happens to the performance bond premium factored/included into the contract sum when the contractor actually did not obtain the performance bond. They requested and were allowed to use the 10% retention money in place of the performance bond but this was after the contract was awarded. In other words the performance bond premium was never utilized but had been included into the contract sum.

Thank you

Gositin Sugiak

Answer
Dear Gositin,

By agreeing to use 10% retention money in place of a performance bond, after award of work, both parties have effectively modified the agreement to that effect. In such case, the Employer stands to be entitled to get the benefit of reversal of the premium of performance bond which was included in the Contract sum, provided the same can be effectively established. This is a sort of savings which should ideally pass on to the Employer.

This is my considered opinion based on the facts mentioned by you.