Compliance with construction projects is critical to the preservation of a party’s rights upon default. In a recent Indiana case, a project owner learned a costly lesson about the price of noncompliance.

In Town of Plainfield v. Paden Engineering Co., Inc., 943 N.E.2d 904 (Ind. Ct. App. 2011), the owner hired Paden to provide a “steel package” for the Plainfield Recreation/Aquatic Center. The rights of the parties were governed by American Institute of Architects (AIA) contracts. Paden delivered a Performance Bond issued by two sureties. The contract included express provisions under which the owner could terminate Paden, and required the owner to consult with the construction manager and obtain certification by the project architect that sufficient cause exists to justify termination. The Performance Bond also required seven days written notice to the sureties.

The working relationship between the owner and Paden was difficult from the start, and each party accused the other of causing project delays. The owner issued a seven-day written notice of termination to Paden, without providing notice to the sureties or obtaining the required certification by the architect.

The trial court granted summary judgment in favor of the sureties, concluding that they had no obligation under the Performance Bond because they were not given notice and opportunity to mitigate damages. The Court of Appeals affirmed, because the owner “admittedly did not comply with formal termination requirements relative to the sureties or afford the sureties to elect a course of action.” 943 N.E.2d at 915. Paden was also granted summary judgment in its favor, because the owner did not obtain an architect’s certification of good cause for termination.