Adding an Additional Obligee to a Performance Bond

Author Matt Gaynor, Director of Surety at Rancho Mesa Insurance Services, Inc.

A Rancho Mesa construction client recently asked if they should be concerned when asked to add a Duel Obligee to a Performance Bond on a construction contract.  The short answer is “no.”  But, let’s expand on that answer.

It has become increasingly more common for project lenders to require they be added as an additional named obligee/beneficiary under construction performance bonds.  Since the lender will be providing the financing for the construction project, they ultimately want to ensure the work is completed in a timely and satisfactory manner.

The request is usually solved by attaching a Dual Obligee Rider to the Performance Bond.  The rider provides the lender with the same rights as the original obligee, as long as they agree to assume the owner’s obligations to the bonded contractor under the contract.

Rancho Mesa recommends its clients ensure the lender sign the Dual Obligee Rider as acceptance of the terms of the rider.  By having both parties (the original obligee and the lender) sign the rider when the Performance Bond is issued, the contractor gains assurance that the lender will meet the same obligations as the owner in the event of a claim under the Performance Bond.