Concerns with the AIA
A312 Payment Bond Form
AIA A312 Background
Commonly-used bond forms for private and for local
First published in 1984 by the American Institute of
Successor to AIA A311 (1970)
Comprised of a performance bond and a payment bond
Surety industry provided comments and input in the
development of the forms but is not the publisher of
A312 Payment Bond
Bond form covering contractor’s obligations to
pay subcontractors and others for labor and
More procedurally detailed, with more elaborate
notice provisions, than A311
A312 Payment Bond:
Important Provisions to Understand:
Paragraph 4 – “The Surety shall have no obligation to Claimants under this Bond until:
4.1 Claimants who are employed by or have a direct contract with the Contractor
have given notice to the Surety…and sent a copy, or notice thereof, to the
Owner, stating that a claim is being made under this Bond and, with
substantial accuracy, the amount of the claim.”
4.2 Claimants who do not have a direct contract with the Contractor:
.1 Have furnished written notice to the Contractor and sent a copy, or notice
thereof, to the Owner, within 90 days after having last performed labor or
last furnished materials or equipment included in the claim stating, with
substantial accuracy, the amount of the claim and the name of the party
to whom the materials were furnished or supplied or for whom the labor
was done or performed; and
.2 Have either received a rejection in whole or in part from the Contractor, or
not received within 30 days of furnishing the above notice any communication
from the Contractor by which the Contractor has indicated the claim will be
paid directly or indirectly; and
.3 Not having been paid within the above 30 days, have sent a written notice to
the Surety…and sent a copy, or notice thereof, to the Owner, stating that a
claim is being made under this Bond and enclosing a copy of the previous
written notice furnished to the Contractor.”
A312 Payment Bond:
Important Provisions to Understand:
Paragraph 6 – “When the Claimant has satisfied the conditions of
Paragraph 4, the Surety shall promptly and at the Surety’s expense take
the following actions:
6.1 Send an answer to the Claimant, with a copy to the Owner,
within 45 days after receipt of the claim, stating the
amounts that are undisputed and the basis for challenging
any amounts that are disputed.
6.2 Pay or arrange for payment of any undisputed amounts.”
The Crux of the Concern:
3 Recent Legal Decisions
National Union Fire Insurance Co. of
Pittsburg v. David A. Bramble, Inc., 879 A.
2d 101 (Md. 2005)
Casey Industrial, Inc. v. Seaboard Surety
Co., 2006 WL 2850652 (E.D. Va. Oct. 2, 2006)
J.C. Gibson Plastering Co., Inc. v. XL
Specialty Insurance Co., 2007 WL 2916399
(M.D. Fla. Oct. 8, 2007)
Maryland decision in which highest Maryland state
court found that a surety’s non-response to a
Claimant’s notice under the terms of Paragraph 6
of the A312 payment bond constituted a complete
waiver of all procedural and substantive defenses
by the surety.
The Court rejected surety’s arguments that: (1) if the
non-response constituted a breach, the claimant should
receive any damages caused by that breach, not
payment of the entire claim, valid or invalid, and (2) the
surety’s non-response should be treated as a denial of
the claim, rather than an admission of liability.
Casey Industrial, Inc. Decision
Virginia decision in which federal district
court, looking to Bramble Decision for
guidance, ruled that a surety’s failure to
identify all fact-based defenses within the
45-day response period of A312 acted as a
waiver of any new fact-based defense raised
outside of the 45-day period.
J.C. Gibson Plastering Co. Decision
Florida decision in which federal district court, following
the Bramble and Casey decisions, held that an untimely
surety response (one given in 48 days) constituted a
complete waiver of the surety’s defenses.
The Court reasoned that the 45-day response period begins to run
from receipt of Claimant’s notice that (1) a claim is being made on
the bond and (2) which states the amount of the claim with
The Court rejected the surety’s contention that the 45-day response
period should commence to run from when the surety receives proof
of loss/substantiating documentation of the claim, since this was
not stated explicitly in the bond form.
The Court noted, that under Florida law, bond language must be
strictly construed against the surety.
45 days is not a long evaluative period given the complexities of today’s
According to the Gibson decision, the 45-day period runs from receipt of a
notice simply identifying that it is a claim on the payment bond and stating an
amount due with “substantial accuracy”; the absence of supporting
documentation does not delay the running of the surety’s response period!
How can the surety make a proper determination as to the merits of the claim
and the range of appropriate defenses in the absence of relevant facts and
documentation? Principal must provide the surety with all claim information
promptly and expeditiously!
An untimely or non-response has harsh consequences for principal and surety
Remember the principal indemnifies the surety for amounts paid out, so the
Principal ultimately bears the risk of paying unsubstantiated claims!
Please note that EJCDC C-615, Payment Bond, is predicated on AIA A312
bond form language and likewise is problematic!
Surety Company Responses
Each surety company will make its own decision
on whether and how to write the A312 payment
Given the import of recent legal developments and increased
risks to contractors and sureties, sureties are reticent to write
an unmodified A312 payment bond form.
Many sureties have created their own custom modifications
to the A312 payment bond form; the language and approach
of such modifications vary among surety companies.
Some sureties seek use of alternative payment bond forms
such as A311.
Some sureties may write an unmodified A312 bond form, but
only for particular accounts.
Surety Industry Response
The National Association of Surety Bond
Producers (NASBP) and The Surety & Fidelity
Association of America (SFAA) have taken
immediate actions to address concerns:
Initiated dialogue and meetings with AIA
Working toward a consensus modification to A312 payment
bond form that can be considered by owners, design
professionals, contractors, and sureties
Seeking development and issuance by AIA of a “stopgap”
amendment to Paragraph 6 of the A312 payment bond form
Seeking to expedite the revision cycle for AIA A312 and to
discuss with AIA the development of alternate bond forms
What Can You Do As A Contractor?
Educate owners and design professionals about the implications
of specifying an unmodified A312 payment bond form! Make
sure they understand that unmodified A312 payment bond
forms will be harder to obtain.
Work with your local contractor associations to bring awareness
to and understanding of these issues!
Cooperate with your bond producer and surety on any payment
bond claims under A312 and provide all relevant information to
the surety as promptly as possible.
For More Information
National Association of Surety Bond Producers (NASBP)
The Surety & Fidelity Association of America (SFAA)
Surety Information Office (SIO)