Thus, if a contractor defaults, the surety could be liable for up to 200 percent of the contract price. One hundred percent of the contract price, over and above the balance remaining in the original contract funds, is available to the obligee to complete the work. Another 100 percent is available to subcontractors, suppliers, and laborers to pay them for work performed on the project. Both of these obligations of the surety benefit the purchaser of the bond-the obligee. The most immediately attractive benefit to the obligee is the obligation of contract completion.
Most surety bonds give the surety the option to choose how to handle a default.
Deny liability in whole or in part and notify the Owner citing reasons therefor. Certainly the obligee must cooperate with the surety to evaluate the current situation and attempt to keep the project moving as quickly as possible. Allocate the remaining contract balances between performance of the contract and payment of unpaid subs and suppliers The obligee essentially is protected from the difficulties these things would cause. The surety handles these matters. Additionally, both the obligee and subcontractors, suppliers, and laborers benefit from the surety's obligations under the payment bond.