Surety Bond Requirements for Courthouse Projects

Questionable practices recently have been brought to our attention about a number of county courthouse construction projects throughout the Commonwealth of Kentucky. These practices center on discrepancies between statutory and contractual bond requirements and the actual bonds furnished by construction managers at risk which have received awards to build these projects. More specifically, the contracts for a number of county courthouse projects properly have required that the construction manager at risk furnish the county with performance and payment bonds to insure the “faithful performance of the Contract and payment of obligations arising thereunder” in amounts equal to “100% of the Contract Sum.” The term “Contract Sum” is a defined term in the contract and represents the sum of the construction manager at risk’s fee and the “Cost of the Work.” The “Cost of the Work” includes all material, equipment, labor, subcontracts, etc. to build the courthouse project. Yet, the amount of the performance and payment bonds actually being furnished by the construction managers at risk hired by the counties for these courthouse projects are in the range of five to six percent of the estimated Cost of the Work, seemingly providing bonded protections solely for the amount of the fee being paid to the construction manager at risk, a considerable departure from the required “100% of the Contract Sum.” Interestingly, on the face of the performance bonds for these projects are descriptions of the projects that include the estimate of the Project Cost, which, in every instance, is considerably more than the face amount of the bond.

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