Arizona Public Works Bonds: Title 34 Requirements and Payment Bond Claims

Both bonds equal the full contract amount. The performance bond is solely for the protection of the public body and is conditioned on faithful performance under the plans, specifications and conditions of the contract. The payment bond is solely for claimants supplying labor or materials to the contractor or its subcontractors. Each bond must let the prevailing party in a suit recover reasonable attorney fees fixed by the judge, is payable to the public body and is filed with the contracting office.

The performance bond form in §34-222(G) runs through the original term, any extension, the life of any guaranty required under the contract and all authorized modifications, with notice of modifications to the surety waived. That language carries the warranty period into the bond, so a one-year or longer guaranty in the specifications stays on the contractor's surety program after acceptance. Subsection I deems every bond given under the article to be in the statutory form regardless of its actual wording.

Surety qualification is strict. Bonds must be executed solely by a surety holding a certificate of authority from the director of the Department of Insurance and Financial Institutions, and individual sureties are barred even if §7-101 would otherwise allow them. The bid invitation may not require a particular surety, agent or broker. If the prime contract requires subcontractor bonds, subsection H holds them to the same surety standard.

Every notice inviting design-bid-build bids under §34-201 must require a certified check, cashier's check or surety bond for 10 percent of the bid, as a guarantee that the contractor will enter into the contract. The statutory bid bond form obligates the principal, if it fails to sign and give the bonds and certificates of insurance named in the standard specifications, to pay the difference between its bid and the larger amount the agent contracts for in good faith, up to the bond penalty. Security is returned to unsuccessful bidders, and to the winner when it executes a satisfactory bond and contract.

Design-build and job-order contracting procured by competitive sealed proposals follow §34-608. Design-build bid security is 10 percent of the agent's construction budget stated in the request for proposals, excluding design, preconstruction, finance and other related services. For job-order contracting, the agent sets the amount at no more than 10 percent of its estimate of the construction likely to be done in the first year. A proposal without required security is rejected unless the agent finds the defect nonsubstantial.

Insurance sits inside the bid bond condition. Because the surety's obligation turns on the contractor delivering the certificates of insurance the standard specifications require, a contractor that cannot place the specified insurance after award may face the same bid bond exposure as one that walks away. Pricing the insurance program before bid day is part of protecting the bid bond.

For construction-manager-at-risk, design-build and job-order-contracting services, §34-610 requires performance and payment bonds only on and at the same time as a contract or amendment that commits the contractor to build for a fixed price, a guaranteed maximum price or another fixed amount within a set time frame. The bonds therefore follow the GMP amendment rather than the preconstruction agreement. For CMAR and design-build, each bond equals the price of construction and excludes design, preconstruction, finance, maintenance, operations and other related services.

Job-order contracts get flexible bonding. The agent may require a single bond for the full term, a separate bond for each year of a multiyear contract or a separate bond for each job order, initially sized on its reasonable estimate of the construction likely to be done. The payment bond protects those supplying labor or materials for the construction, not those providing design or other related services.

For a surety, an open-ended job-order contract with annual bonds looks different from a single GMP. Contractors should send the agent's bonding election and the estimated annual volume with the bond request so the surety can size the program to the work that is likely to be ordered.

A claimant that furnished labor or material and has not been paid in full 90 days after its last labor or material may sue on the payment bond for the unpaid balance. The statute adds notice steps only for a claimant that contracted with a subcontractor and has no contract, express or implied, with the prime. That claimant must first give the contractor a preliminary 20-day notice under §33-992.01 and a written 90-day notice within 90 days after its last labor or material, stating with substantial accuracy the amount claimed and the party it supplied or worked for.

The preliminary notice borrows from the mechanic's lien statute. It is due within 20 days after the claimant first furnishes labor or materials to the jobsite and must describe the work with an estimated total price, name the claimant and the party that hired it and identify the jobsite. A late preliminary notice reaches only work furnished within 20 days before it was given and afterward under §33-992.01(E). Under subsection F, it may be mailed first class with a certificate of mailing or by registered or certified mail.

Delivery of the 90-day notice differs by delivery method. Under §34-223 it may go by any means that provides written third-party verification of delivery to the contractor's office, place of business or residence. Under §34-611, which governs CMAR, design-build and JOC bonds, it must be served by registered or certified mail. Under both, suit is brought in the claimant's name no later than one year after its last labor or material.

An unpaid claimant, a party sued on the bond or the surety may apply in writing to the contracting body for a certified copy of the bond and contract, which is prima facie evidence of the original under §34-223(C). The applicant pays the reasonable fee the body sets for preparing the copies. Suppliers that do not know who wrote the bond can start there.

Retention under §34-221 runs beside the bonds. The owner retains 10 percent of each estimate until the contract is 50 percent complete, then on request releases half of the retained amount and holds no more than 5 percent of later payments while progress is satisfactory. The contractor may substitute qualifying securities for retained amounts. Sureties read retained balances as part of working capital, so retention timing on a large job can affect the contractor's capacity for the next bid.

Arizona also limits indemnity on public work. Under §34-226, a contracting agent may require the contractor to indemnify it only to the extent of the contractor's own negligence, recklessness or intentional wrongful conduct, and broader provisions are void. The statute still allows insurance requirements that comply with it, including additional insured status on general liability and designated insured status on auto liability, so the insurance exhibit and the indemnity clause should be read together with the bonds.