A contractor receives a change order that increases the contract value by $275,000 and extends the completion date by 18 days. The contractor's surety bond was originally 100% of the $4,200,000 contract value. What action should the contractor take regarding the bond?
Correct Answer
B) Notify the surety and request a bond increase to cover the additional contract value
Material changes to the contract typically require surety notification and potentially a bond increase to maintain proper coverage of the revised contract amount.
Why This Is the Correct Answer
When a change order materially increases the contract value, the contractor must notify the surety company and request a bond increase. The original bond of $4,200,000 no longer covers the new contract value of $4,475,000. Surety bonds are tied to specific contract amounts, and any significant increase requires surety approval and adjustment to maintain proper coverage and compliance with bonding requirements.
Why the Other Options Are Wrong
Option A: Request the owner to waive bond requirements for the additional work
Requesting the owner to waive bond requirements is inappropriate and likely violates contract terms. Bond requirements protect the owner and cannot simply be waived for additional work. The contractor remains obligated to maintain proper bonding coverage.
Option C: Purchase additional insurance coverage
Additional insurance coverage does not address the surety bond requirement. Insurance and surety bonds serve different purposes - insurance protects against losses while bonds guarantee contract performance. The bond amount must be adjusted, not supplemented with insurance.
Option D: No action needed as the change is less than 10%
The 10% threshold is not a standard rule for bond modifications. A $275,000 increase (6.5% of original contract) is still material and requires surety notification. Any significant contract value increase typically requires bond adjustment regardless of percentage.
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