Default -
 Contract with Performance Bond

Once the contractor has been defaulted, the surety has several options to remedy the contract so the project can be completed. The surety will choose one of three options: Takeover Agreement, Tender Agreement, or paying the Penal Sum. TxDOT does not have the authority to direct the surety towards any option.
All the options will require the district to contact CST-Construction & Maintenance Contract Letting Section (CMCL) on the option chosen by the surety. CMCL will develop the template and work with the district to complete the process. The district will work with the surety on items of work left to do, the time charges, and liquidated damages.
When negotiations between the surety and the district start and the surety has an attorney present at the meeting contact GCD. Do not accept monetary settlement or payment of the remaining contract balance from the surety.
If TxDOT and the Surety cannot agree upon a completion process, the project will be turned over to Attorney General’s office for a resolution.
Takeover Agreement
When a Takeover option is selected, the surety will secure a completion contractor to complete the work. The surety can hire the original contractor. The selected contractor must be approved to work for TxDOT (contact CMCL to verify the contractor is pre-approved) and the district also has the option to reject the completion contractor. Once all negotiations have been completed and the surety has signed the Takeover Agreement. Ensure that the original DBE/SBE goals are satisfied in accordance with the contract. The contractor needs to maintain the DBE commitments approved on the job if the DBE is agreeable to complete the work with the new contractor.
The following would occur:
  • CMCL will change the Prime Contractor to the Surety in SiteManager
  • the completion contractor will become a subcontractor.
    • any additional subcontractors to the completion contractor will need to be submitted as second tier subcontractors.
    • the 70% subcontracting limitation is no longer a requirement.
    • follow the subcontractor approval procedure in accordance with Section 3 of this chapter.
  • FIN will change the payments over to the Surety.
  • the new completion contractor can begin working after the preconstruction meeting.
Tender Agreement
When a Tender option is selected, the surety will select a completion contractor to complete the work. The selected contractor must be approved to work for TxDOT (contact CMCL to verify the contractor is pre-approved) and the district also has the option to reject the completion contractor. Once all the negotiations (items left on the project, MOH, LD’s etc.) and the completion contractor is selected the surety pays TxDOT any additional cost above the amount left on the project and, the original surety is released from the contract.
The completion contractor will need to secure an approved Surety for the completion of the project. Once all the negotiations and Contractor and Surety are approved work can begin. Once all negotiations have been completed and the surety has signed the Takeover Agreement. Ensure that the original DBE/SBE goals are satisfied in accordance with the contract. The contractor needs to maintain the DBE commitments approved on the job if the DBE is agreeable to complete the work with the new contractor.
The following would occur:
  • CMCL will change the Prime Contractor to the Surety in SiteManager
  • the completion contractor will become a subcontractor.
    • any additional subcontractors to the completion contractor will need to be submitted as second tier subcontractors.
    • the 70% subcontracting limitation is no longer a requirement.
    • follow the subcontractor approval procedure in accordance with Section 3 of this chapter.
  • FIN will change the payments over to the Surety.
  • the new completion contractor can begin working after the preconstruction meeting.
Penal Sum
When a Penal Sum option is selected, the surety will write a check to TxDOT. The amount of the check will be determined based on negeotions (between TxDOT and the Surety) or for the bond amount of the project. The check will not exceed the bond amount, if any remaining work and liquidated damages (LDs) amounts exceeds the bond amount, the excess LDs will be removed from the project.
The following would occur:
  • FIN will receive the check from the surety
  • the district will complete a unilateral non-participating change order(s). These change orders will not affect the Penal Sum paid by the surety.
    • if Material on Hand (MOH) exist on the contract process a change order to move the MOH into the district stock account, using reason code 3K. (This material can be used when the project is relet).
    • if no MOH exist, process a change order to close the project out, using reason code 7G. In the change order description ensure to include the check information that was received by FIN and the project was terminated due to Penal Sum being paid.
  • if the Surety has paid to maintain traffic control or environmental work, these costs will reduce the Penal Sum.
  • the project can be relet using state funds, completed by TxDOT maintenance crews or the project cancelled.
  • the district will work with FIN to transfer the money from the Penal Sum to apply to the appropriate fund to pay for the work to complete the project.
  • if the project is a TxDIP project, contact TxDOT’s FHWA liaison to work with FHWA.