Section R7-2-1103. Contract Performance and Payment Bonds

A.      The following bonds or security is required and is binding on the parties to the contract if the value of a construction or con- struction services award exceeds the amount established by R7-2-1002(A):

1.        A performance bond that is executed and furnished as required under Arizona Revised Statutes Title 34, Chap- ter 2, Article 2 or Chapter 6, as applicable, in an amount equal to one hundred percent of the price specified in the contract conditioned on the faithful performance of the contract in accordance with the plans, specifications and conditions of the contract, except that:

a.         For job-order-contracting construction services, the performance bond shall cover the full amount of construction under the job-order-contracting con- struction services contract, shall not include any design services, preconstruction services, finance services, maintenance services, operations services or other related services included in the contract, may be a single bond for the full term of the con- tract, a separate bond for each year of a multiyear contract or a separate bond for each job order, as determined by the school district, and, if a single bond for the full term of the contract or a separate bond for each year of a multiyear contract, shall ini- tially be based on the school district's reasonable estimate of the amount of construction that the school district believes is likely to actually be done during the full term of the contract or during the par- ticular year of a multiyear contract, as applicable.

b.        For construction-manager-at-risk construction ser- vices and design-build construction services, the amount of the performance bond shall be the price of construction and shall not include the cost of any design services, preconstruction services, finance services, maintenance services, operations services and other related services included in the contract. This bond is solely for the protection of the school district. The conditions and provisions of the perfor- mance bond regarding the surety's obligations shall

follow the form required under A.R.S. § 34-222(G) or A.R.S. § 34-610(G), as applicable.

c.         For guaranteed energy cost savings contracts and guaranteed energy production contracts, the amount of the performance bond shall be one hundred per- cent of the project amount to the school district for its faithful performance of the equipment install- ment.

2.        A payment bond that is executed and furnished as required by Arizona Revised Statutes Title 34, Chapter 2, Article 2 or Chapter 6, as applicable, in an amount equal to one hundred percent of the price specified in the con- tract for the protection of all persons supplying labor or material to the contractor or its subcontractors for the per- formance of the construction provided for in the contract, except that:

a.         For job-order-contracting construction services, the payment bond shall cover the full amount of con- struction under the job-order-contracting construc- tion services contract, shall not include any design services, preconstruction services, finance services, maintenance services, operations services or other related services included in the contract, may be a single bond for the full term of the contract, a sepa- rate bond for each year of a multiyear contract or a separate bond for each job order, as determined by the school district, and, if a single bond for the full term of the contract or a separate bond for each year of a multiyear contract, shall initially be based on the school district's reasonable estimate of the amount of construction that the school district believes is likely to actually be done during the full term of the contract or during the particular year of a multiyear contract, as applicable.

b.        For construction-manager-at-risk construction ser- vices and design-build construction services, the amount of the payment bond shall be the price of construction and shall not include the cost of any design services, preconstruction services, finance services, maintenance services, operations services or other related services included in the contract. The conditions and provisions of the payment bond regarding the surety's obligations shall follow the form required under A.R.S. § 34-222(F) or A.R.S. § 34-610(F), as applicable.

B.       For design-bid-build construction, the bonds prescribed in subsection (A) shall be provided on and at the same time as execution of the construction contract. For construction-man- ager-at-risk, design-build and job-order-contracting construc- tion services, the bonds prescribed in subsection (A) shall be provided only on and at the same time as execution of a con- tract or contract modification that commits the contractor to provide construction for a fixed price, guaranteed maximum price or other fixed amount within a designated time frame.

C.      If the prime contract or specifications require any persons sup- plying labor or materials in the prosecution of the work to fur- nish payment or performance bonds,  these  bonds  shall be executed solely by a surety company or companies holding a certificate of authority to transact surety business in this state issued by the director of the Department of Insurance pursuant to Arizona Revised Statutes Title 20, Chapter 2, Article 1. Notwithstanding the provisions of any other statute, the bonds shall not be executed by an individual surety or sureties, even if the requirements of A.R.S. § 7-101 are satisfied.

D.      If a contractor fails to deliver the required performance bond or payment bond, the contractor's bid shall be rejected, its bid

security shall be enforced, and award of the contract shall be made pursuant to Articles 10 and 11.

E.       This Section shall not be construed to limit the authority of the school district to require a performance bond or other security in addition to those bonds or in circumstances other than spec- ified in subsection (A).

F.       Any person who furnishes labor or material to the contractor or its subcontractors for the work provided in the contract, in respect of which a payment bond is furnished under this Sec- tion, and who has not been paid in full within 90 days from the date on which the last of the labor was performed or material was supplied by the person for whom the claim is made has the right to sue on the payment bond for any amount unpaid at the time the suit is instituted and to prosecute the action for the amount due the person. However, any person who has a con- tract with a subcontractor of the contractor, but no express or implied contract with the contractor furnishing the payment bond, has a right of action on the payment bond on giving the contractor, only, a written preliminary 20-day notice as pro- vided for in A.R.S. § 33-992.01, subsection (C)(1), (2), (3), and (4) and subsections (D), (E), and (H), and upon giving written notice to the contractor within 90 days from the date on which the last of the labor was performed or material was sup- plied by the person for whom the claim is made. The person shall state in the notice the amount claimed and the name of the party for whom the labor was performed or to whom the material was supplied. The notice shall be personally served or sent by registered mail, postage prepaid, in an envelope addressed to the contractor at any place the contractor main- tains an office or conducts business.

Historical Note

Adopted effective December 17, 1987 (Supp. 87-4). Sec- tion repealed; new Section made by final exempt rulemaking at 21 A.A.R. 1525, effective July 1, 2015

(Supp. 15-3).