/>iThe Oklahoma Supreme Court has rejected a contractor’s performance bond claim due to the lack of adequate notice to the subcontractor’s surety (see Flintco LLC v. Total Installation Management Specialists, Inc., No. 120,100 (Okla. May 28, 2025)). The case involves the construction of three student housing buildings on the campus of Oklahoma State in Stillwater. During construction the flooring subcontractor fell behind schedule. The general contractor communicated its concerns to the subcontractor but not to the subcontractor’s surety. The general contractor ultimately decided to supplement the flooring subcontractor’s work but did so without first giving notice of the subcontractor’s default to the subcontractor’s surety. Five weeks after supplementing the subcontractor’s work, the general contractor gave notice to the subcontractor’s surety that it was making a claim on the subcontractor’s performance bond for costs incurred supplementing the subcontractor’s work. The trial court ruled in favor of the general contractor, but the Oklahoma Court of Civil Appeals reversed, concluding that the bond required the contractor to provide prior notice of default to the surety as a mandatory condition precedent to recovery of supplementation costs. The Oklahoma Supreme Court agreed with that conclusion.
In reaching that decision, the Supreme Court helpfully clarified the different types of performance bonds, which are not all created equally:
In the construction industry, various types of bonds are commonly included under the heading of “performance bond” including: 1) the traditional performance bond; 2) the indemnity bond; 3) the completion bond; and 4) the manuscript bond. Each of these bonds has as its objective the protection of the obligee against contractor default. Under an indemnity bond, the surety’s performance obligation is limited to reimbursing the obligee for the costs of completion of the project, but generally does not expressly give the surety the right to cure a default by takeover and completion. Under a completion bond, the surety’s performance obligation is generally limited to the single option of taking over the work and completing the contract at the sole expense of the surety. The manuscript bond combines performance, completion, and indemnity obligations, and is often tailored and negotiated in projects where large owners are intent on shifting to the surety and contractor as much risk as possible.
The Bond involved in the present case is a traditional performance bond, modeled after a standardized contract form developed and published by the American Institute of Architects (AIA) — the A311 Performance Bond. This type of bond form provides several performance options to the surety, including remedying the default or arranging for performance. These options contemplate that the surety has a variety of choices, such as assisting the principal contractor with labor or materials or engaging a replacement contractor to complete the work. The Bond also permits the obligee, after reasonable notice to the surety, to arrange for performance of the work, in which case the surety is required to provide financial compensation for the cost of completing the project.
The Flintco court recognized a split of authority among courts interpreting similar performance bonds based on the AIA A-311 form. While some courts have concluded that prior notice to the surety is indeed a condition precedent to recovery, others have disagreed. Applying traditional rules of contract interpretation, the Flintco court ruled that the performance bond at issue did require prior notice to the surety as a condition precedent to recovery of supplementation costs. Having failed to give prior notice to the surety, the contractor’s performance bond claim was rejected.
A copy of the court’s decision is available here. It is a good reminder to pay close attention to the wording of your bonds, which are not all created equally but can have differing notice requirements and provide different forms of relief.
