AIA Makes Sweeping Changes to A312 Payment and Performance Bonds
September 29, 2010
As expected, The American Institute of Architects (the “AIA”) recently released the 2010 version of the A312 Payment and Performance Bonds. The last time the AIA revised the A312 was in 1984.
Although there are several changes to the bond form that can be reviewed on the AIA’s website (Click Here for A312 Comparison Document), one modification that many contractors, sureties and construction attorneys anticipated was the manner in which the AIA addressed the consequences of a surety’s failure to provide a timely answer to a claimant’s payment bond claim. This change was undoubtedly in response to cases such as National Union Fire Insurance Company of Pittsburgh, PA v. David Bramble, Inc., 388 Md. 195, 879 A.2d 101 (2005), in which the Court of Appeals of Maryland held that a surety’s failure to send an answer to claimants within 45 days, as required under the 1984 version of the A312 payment bond, operated as a waiver of any defenses the surety had with respect to the claims, and consequently the surety was obligated to pay the claimant in full. The approach taken by the Court of Appeals of Maryland in National Union quickly took hold, and other states like Virginia and Florida followed suit.
The rationale focused on Paragraphs 6 of the A312-1984, which provides:
§ 6 When the claimant has satisfied the conditions of Section 4, the Surety shall promptly and at the Surety’s expense take the following actions:
§ 6.1 Send an answer to the Claimant, with a copy to the Owner, within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed.
§ 6.2 Pay or arrange for payment of any undisputed amount.
The 2010 version not only extends the period for the surety’s response from 45 days to 60 days, but also as a result of the National Union case and later decisions that followed it, the new version of the payment bond now provides that:
The Surety’s failure to discharge its obligations . . . shall not be deemed to constitute a waiver of defenses the Surety or Contractor may have or acquire as to a Claim, except as to undisputed amounts for which the Surety and Claimant have reached agreement, If, however, the Surety fails to discharge its obligations . . . the Surety shall indemnify the Claimant for the reasonable attorney’s fees the Claimant incurs thereafter to recover any sums found to be due and owing to the Claimant.
Since the payment bond was just recently released, there are no published opinions that interpret the new bond language. However, as future litigation crops up out of this language of the new bond, it is likely that a surety will not be penalized as harshly as the sureties in National Union for the failure to provide a timely answer to a payment bond claim. Rather, under the 2010 bond, the surety likely will only be penalized by having to pay the claimant’s attorneys’ fees incurred in connection with the claim.
Other significant changes under the 2010 version of the A312 are: