SAN FRANCISCO—Cox, Castle & Nicholson LLP partner Robert Campbell and his team routinely work through complex construction disputes that arise between a client and its general contractors, subcontractors, etc. Campbell discussed these issues and other contractor obligations in the first of a two-part exclusive.

GlobeSt.com: How can developers guarantee the performance of their general contractor's obligations under the general contractor's contract?

Campbell: The traditional mechanism employed to guarantee the contractor's obligations is through performance and payment bonds. The AIA form of performance bond requires as a condition to the surety's obligation that the owner terminate the contractor. This creates a perverse incentive to terminate the contractor toward the end of a delayed job in order to recover LDs. An owner should not have to terminate the contractor to secure a guarantee of the contractor's post-completion obligations such as warranty performance or to secure recovery following a job cost audit. An owner should want the surety to guarantee performance of all material defaults, regardless of whether the contractor has been terminated. Because sureties are not dependable when legitimate bond claims are tendered, rather than rely on them, it is better to hire a well-financed contractor with a solid project team (who are committed to staying on the project to the end) to avoid major disputes altogether.