A Performance Bond’s Fixed and Flexible Scope.
Whether you are an owner or a contractor, you have likely at least considered the additional security that a performance bond offers to assure yourself that the work downstream gets done, and gets done to your satisfaction. However, if you have a downstream entity obtain a performance bond, you must keep the bond’s scope in mind throughout the course of the project. When a performance bond is issued, it likely ties the surety’s obligation to the original scope of work in the downstream entity’s contract. From that point on, you might expand the contract’s scope numerous times, but expanding the contract’s scope does not necessarily expand the surety’s obligation to the same extent.
While it might seem like the performance bond should cover all of the work that the downstream entity ultimately performs on the project, keep in mind that the surety received an amount of money for issuing the bond that was based on the original scope. Therefore, the surety will have a strong argument that it should not be responsible for work that was subsequently added.
A surety’s obligation can be expanded, however. If a change order is issued expanding the downstream entity’s contract, the surety’s obligation could be expanded through an amendment to the bond called a "rider." I recently represented a general contractor that issued numerous change orders and even entered into a second subcontract with a subcontractor, for the same project. With a completely separate contract, it might be necessary to have a completely separate bond issued.
Given how likely it is that a downstream entity’s scope of work will be expanded at some point during a project, it is important to keep the scope of the surety’s obligation in mind and make sure that it is expanded as necessary, so the surety is responsible for all applicable work, in the event you actually need the bond’s protection.