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What Is A Takeover Agreement?

ConstructionContract4

A surety is an insurance company that promises to complete work on a construction project, in the event that the contractor or builder does not. The surety is a guarantee for the owner that someone will be there to complete the project, even if the contractor defaults.

But if the contractor does default, or can’t finish the job, there is one, glaring problem: there’s an owner who needs the project completed, and a surety who is obligated to complete the work, but there is no contract between the owner and the surety, the way there was between the owner and the original contractor.

Enter the Takeover Agreement

This is why there are takeover agreements. These agreements are like separate construction contracts between an owner and a surety. They only take effect if the surety has to complete the project—that is, if the contractor defaults. In a best case scenario, the agreement will never be used, because the contractor will complete the work as promised.

A takeover agreement should specify:

  • How much is owed under the contract, and language that confirms that the original contractor has defaulted
  • The expected date that the work should be completed (which will usually be different from the date in the original contract between the original contractor and the owner). Sometimes, if the owner agrees to waive contractual penalties for the original contractor’s default, the surety may agree to complete the project sooner, or provide additional benefits
  • Confirmation of how much has already been paid to the contractor, and how much work may be outstanding at the time of takeover
  • Damages including any contractual, liquidated damages, that will apply if the work is not completed in a timely manner by the surety, and which have already been incurred because of the original contractor’s default
  • A description of the work that still needs to be completed, and the exact expectations that the owner has, as to how the project will be completed
  • A description of how change orders will be handled.
  • A statement of whether the surety will be responsible for latent defects, or any defects made by the original contractor

The New Contractor

Although it sounds odd, most sureties are allowed to hire the original contractor—yes, the same contractor that defaulted on the original contract—to finish the project. However, the surety normally will require that it be able to hire whatever company that it wants to complete the work on the project.

Whatever company is used to complete the contract will have to consider a number of things as well. For example, is there a dispute about workmanship between the owner and the original contractor? This could delay the new contractor’s ability to complete the project, if aspects of the construction site are considered evidence that can’t be touched because of pending litigation.

Our Fort Lauderdale construction law attorneys at Sweeney Law P.A. at 954 440-3993 are here if you have a legal problem related to a construction project. Call us today with your construction law questions.

Resource:

law.cornell.edu/cfr/text/48/49.404

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