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Construction Bonds  Continued From Page 21


Although more commonly seen in larger public projects than association projects, the following bonds need to be requested as part of the bid process since contractors will not assume they need to provide them. There is also a cost to the association for each of these bonds. The cost may be 0.5% to 2.5% of the construction cost, so the association will want to make sure they feel they need the bond before having the contractor secure it. Whether the contractor will be responsible for the cost of the bond or pass it through to the association will be up to the parties to negotiate. ` Performance Bond: A promise that surety company agrees to pay the property owner a stipulated amount or complete the work if the contractor fails to meet the obligations of the contract. An example of performance-related stipulations might be a timeframe within which the project will be completed.


` Bid Bond: An agreement that once a contractor wins a bid, they will undertake the work outlined in the bid at the terms set, if they are selected to do the work.


` Payment Bond: Guarantees that general contractors pay their subcontractors for work completed.


The cost to the association for each bond may be an additional 0.5% to 2.5% of the total construction cost.


As stated, other than a contractor’s license bond, it’s not as typical to see the other types of bonds in relation to projects within associations, but may be appropriate given the size and scope of a particular project. It’s a good idea to follow the guidance of your attorney and/or project consultant when determining which bonds are most applicable given the type of project.


Retainage


It is however more common to see something called retainage used in smaller contracts as an insurance of sorts—an association may hold back a percentage (often 5%) of vendor progress payments until all contractual obligations have been fulfilled. This may be added in the contract since the contractor proposal may not specify any retainage to be withheld.


20 Community Associations Journal | July-August 2021


Bonding in contracts are not just limited to your construction and repair projects. Builder, maintenance, or plat bonds are other types of bonds required between the developer of a community and the city, county, or state as an assurance that certain maintenance, landscape, utility, or other obligations will be upheld. Following are examples of provisions found in two different sets of governing documents for associations in Washington state. The association names have been replaced with fictitious names, but this language is likely to be found in the Declaration or on the face of the plat map.


Provisions Example A (Condominium Act) ABC Townhomes, whose governing documents


were drafted under RCW 64.34 (Condominium Act): Section 10.10 details the responsibility of an association to ensure the obligations covered by a builder’s bond are performed: “The Association shall promptly upon demand reimburse Declarant for any costs directly or indirectly incurred by Declarant as a result of the Declarant performing or the Association’s failure to perform, such work including any work necessary to obtain a release or avoid a forfeiture of any cash deposit or other bond made by Declarant.”


Provisions Example B (WUCIOA) Tiny Townhomes, whose governing documents


were drafted under RCW 64.90 (Washington Uniform Common Interest Ownership Act or WUCIOA): Section 9.11.1, “The Association hereby acknowledges, and all Owners by acceptance of a deed to any Unit acknowledge, that the Declarant of its predecessor posted one or more maintenance bonds with the governmental authority…. All Owners further acknowledge they will remain obligated to complete certain maintenance and repair work under the Plat Bonds until the jurisdiction releases the Plat Bonds back to Declarant” it then goes on to assign financial responsibility to cure the bond, back to the Association: “If the Association or any Owner causes or permits damage to an item installed under or covered by a Plat Bond or otherwise fails to maintain such an item when they had an obligation to maintain the same under this Declaration, the Plat or other binding instrument, and Declarant may exercise its easement rights in this paragraph to maintain, repair or replace any aspect of a right to perform such maintenance, repair or replacement work and to thereafter seek reimbursement for all reasonable costs incurred from the Association or the responsible Owner. The responsible party shall reimburse Declarant for all such reasonable costs incurred with 30 days after demand…”


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