An Administrator's Guide to California Private School Law

Chapter 17 – Construction

 Determine whether the school can or should stop work and carry out the work itself. A provision allowing the school to do so should be included in the contract documents.

b. Negotiate Termination With Contractor And Surety If the school decides to terminate a contractor for convenience and negotiate the termination with the contractor and surety, it should consider how doing so will impact its rights under the performance bond and payment bond. In evaluating this option, the school should be aware that it will take time to negotiate what is due, negotiate liquidated damages, solicit and review additional bids, pick a new contractor, and obtain new bonds, if necessary. In addition, it may be difficult to find a new contractor to complete a partially-completed project. c. Terminate Contractor For Cause Before terminating the contractor for cause, a school should consult legal counsel regarding the specific requirements of the contract and performance bond. A school’s failure to comply with those requirements could subject the school to liability if the contractor files a lawsuit. These requirements can include:

 Sending notice to contractor and performance bond surety by certified or registered mail indicating that the school will be considering terminating the contract due to the contractor’s material breach. This notice should also set forth the reasons for termination.  Providing the contractor an opportunity to cure the material breach.  After the time has run for the contractor to cure, the school may demand that the performance bond surety take over and complete the project.  If the surety does not agree that the contractor is in default, the school will have to make a finding that the surety is in default and select another contractor to complete the work with another surety. This could substantially delay the project. The contract and performance bond should state that the surety will be liable to the school for any excess cost or other damages incurred due to its failure to take over the work. The school may still need to sue the original surety to recover under the performance bond.  If the surety agrees that the contractor is in default or otherwise decides it will complete the project, the surety will likely insist on a “takeover agreement.” A “takeover agreement” sets forth the terms and conditions under which it will complete the project. Such an agreement is not required, but the surety may resist taking over a project without one. Under a “takeover agreement,” the surety will likely want all remaining project funds. The surety is not entitled to, and the school should not release, any liquidated damages already accrued against the contractor on the project. The surety must find a new contractor, subcontractors, and suppliers to complete the project. The “takeover agreement” may therefore take some time to negotiate.

An Administrator’s Guide to California Private School Law ©2019 Liebert Cassidy Whitmore 581