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Gloucester City Board of Education v. American Arbitration Association

August 11, 2000

GLOUCESTER CITY BOARD OF EDUCATION, PLAINTIFF-APPELLANT,
V.
AMERICAN ARBITRATION ASSOCIATION, DEFENDANT,
AND
AMWEST SURETY INSURANCE COMPANY, DEFENDANT-RESPONDENT,
AND
BURRIS CONSTRUCTION COMPANY, INC., DEFENDANT/THIRD-PARTY-PLAINTIFF,
V.
J&L PLUMBING & HEATING, INC., T/A J&L ASSOCIATES, INC., AND WORTH & COMPANY, INC., THIRD-PARTY DEFENDANTS



Before Judges Skillman, D'Annunzio and Newman.

The opinion of the court was delivered by: Skillman, P.J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued April 4, 2000

On appeal from Superior Court of New Jersey, Chancery Division, Camden County.

The primary issue presented by this appeal is whether a surety which issues a statutorily mandated performance bond for a public construction project may establish preconditions for the filing of a claim under the bond that are not contained in the bond form prescribed by N.J.S.A. 2A:44-147.

In 1993, plaintiff Gloucester City Board of Education (Board) solicited bids for the construction of a new elementary school. The instructions to all bidders included a provision which stated in part:

Each successful bidder shall be required to furnish a performance bond in the amount of 100% of the contract sum. The bond shall be on a form furnished by the Architect (Document 00600) or may be a State Statutory Form.

The bid solicitation included another provision which stated that each bidder must submit "[a] Certificate (Consent of Surety) as per N.J.S.A. 18A:18A-25, from Surety Company stating that it will provide the Bidder, if successful[,] with a Performance Bond in the sum of the Contract[.]"

J&L Associates (J&L) submitted the successful bid for the plumbing work for the new elementary school. J&L's bid submission included an "Agreement of Surety," executed by General Accident Insurance Company of America (General Accident), which stated that "the undersigned Surety will provide [a] contract performance . . . bond[] as required by the specifications in the full amount of the contract price."

Defendant Burris Construction Company (Burris) was the successful bidder for the general construction contract. Prime contracts also were awarded to four other contractors.

The Board and J&L executed a contract for the plumbing work, which provided that the work was to commence on November 8, 1993, and be substantially completed by July 1, 1995. Subsequently, J&L submitted a performance bond, dated January 12, 1994, which was executed by defendant Amwest Surety Insurance Company (Amwest) rather than by General Accident.*fn1

Paragraph one of the Amwest performance bond states:

The Contractor and the Surety, jointly and severally, bind themselves . . . to the Owner for the performance of the Construction Contract, which is incorporated herein by reference.

Paragraph three states in pertinent part:

[T]he Surety's obligation under this Bond shall arise after:

The Owner has declared a Contractor Default and formally terminated the Contractor's right to complete the contract.

Paragraph nine states in pertinent part:

Any proceeding . . . shall be instituted within six months after Contractor Default or within six months after the Contractor ceased working or within six months after the Surety refused or fails to perform its obligations under this Bond, whichever occurs first.

The Board notified J&L and Amwest at various times during 1994 and 1995 that J&L was not performing the plumbing work in accordance with the contract, and that the Board was considering declaring a contract default. On August 10, 1994, the Board's architect for the project sent a letter to J&L, with a copy to Amwest, which stated that J&L had been "repeatedly notified" that it had made "inadequate progress due to a lack of sufficient manpower on the project," resulting in construction delays of approximately six weeks. On December 19, 1994, the architect sent another letter to J&L, with a copy to Amwest, which stated that the project was "at least eight weeks behind schedule because of J&L's lack of performance," and that J&L was being put on notice of the Board's intention to terminate the contract. On December 28, 1994, the Board's counsel sent a letter to Amwest and J&L, stating that the Board was considering declaring a contract default and requesting a conference.

More than a year later, on April 2, 1996, the Board sent a letter to J&L and Amwest, which stated in part:

This is to give you notice pursuant to paragraph 3.1 of the performance bond that the Gloucester City Board of Education is considering declaring a contract default under its agreement with J & L . . . .

Pursuant to paragraph 3.1, the Board requests a conference with the two of you within 15 days after you receive this notice to discuss methods of ...


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