Final answer:
Claims under Bid and Performance bonds are handled through a formal process, which includes the surety investigating the claim and then, if valid, taking action to ensure contract completion or paying the penal sum. The process protects project owners against risks associated with construction projects.
Step-by-step explanation:
The handling of claims under Bid and Performance bonds typically involves a formal process. When a claim is made on a bid bond, it often results from the bidder failing to honor the bid, whereas claims on performance bonds are triggered when the contractor defaults on the contract. Upon a claim, sureties will investigate to confirm the legitimacy and, if valid, may arrange for the completion of the contract, or pay the bond penal sum.
To start, the obligee (project owner) notifies the surety of the contractor's default. The surety conducts an investigation to verify the claim's validity, which involves reviewing the contract documents and gathering information. If the claim is justified, options to resolve the issue may include financial compensation to the obligee, sourcing another contractor to complete the project, or providing technical and financial assistance to the original contractor to fulfill the contract.
Understanding that these bonds provide financial security and assurance, they play a crucial role in protecting the interests of the project owners against the potential risks associated with construction projects.