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To Get Paid, Surety Must Inform Govt. Of Contractor Default

Sunday, October 04, 2009 06:15 pm

To Get Paid, Surety Must Inform Govt. Of Contractor Default

When a contractor defaulted and the surety stepped in to make payments, the government did not have to pay the surety until it specifically notified the government that the contractor was in default -- even if the government already knew.

In 2001, the United States Postal Service (the Postal Service) hired Selpa Construction & Rental Equipment Corporation (Selpa) to build a post office in Puerto Rico for $2.6 million. Selpa obtained the required bonds from United Surety & Indemnity Company (United Surety). United Surety provided a $1-million payment bond and a $2-million performance bond. The indemnity agreement between Selpa and United Surety gave United Surety the right to control any matters connected with the underlying construction contract in order to minimize loss.

Selpa began work but was unable to continue to perform under th [...]

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