Vasquez Construction has been awarded a contract by a local school board to build a new public school and must provide a performance bond. a. With respect to the performance bond, identify the principal, surety, and obligee. b. If Vasquez Construction fails to complete the building according to the terms of the contract, what would be the surety’s obligation? c. Does the surety have any recourse against Vasquez Construction in this example? Explain your answer.

Question

03-06-2020
Business

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Vasquez Construction has been awarded a contract by a local school board to build a new public school and must provide a performance bond. a. With respect to the performance bond, identify the principal, surety, and obligee. b. If Vasquez Construction fails to complete the building according to the terms of the contract, what would be the surety’s obligation? c. Does the surety have any recourse against Vasquez Construction in this example? Explain your answer.

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Answer:

(a) The Vasquez construction is the principal, the surety is the party that underwrites the contract and local school board is the obligee.

(b) If Vasquez fails to finish the contract, then the surety will be required to pay for the loss suffered by the obligee due to the contract failure.

(c) In a surety bonds contract, the surety has a legal right to get back the losses from the principal.

Explanation:

Solution:

(a) Under a performance bond contract, the owners assures that the work will be completed within a specific time frame and contract specification.

In this example given, the Vasquez construction is the principal, the surety is the party that underwrites the contract and local school board is the obligee.

(b) If the Vasquez construction fails to complete or finish the contract, then the surety will be obliged to pay for the loss suffered by the obligee due to the failure of the contract.

(c) In a surety bond contract, the surety has a legal right to recover the losses from the principal. for this later on, the surety can recover it's loss from the principal.