A Right-of-Way Bond is generally required of contractors who have been granted a permit to conduct a construction or excavation project within a public right of way. Right of way (ROW) means projects being on or around streets, roadways, highways, sidewalks, driveways, and encroachments. On occasion, sign and utility contractors may need this type of surety bond if it is determined that the job will affect a public right of way.
Oftentimes referred to as a ROW Performance or Permit Bond, the Right of Way Bond acts as a financial assurance to the governing regulator (obligee) that applicable permit regulations and contract stipulations will be upheld by the contractor (principal). Funds from the surety bond are available, should a violation occur, to cover financial damages incurred by the city or county themselves, and/or any person harmed.
As a direct provider of Right of Way Bonds, Jet Insurance Company is legally obligated to pay out claims that are determined to be valid. However, one of Jet’s key goals is to protect our customers from baseless allegations. Because of this, our team is here to give contractors the tools they need to ensure a violation never occurs.
With this in mind, let’s go over how to avoid a claim in the first place and how the claim process works should an official filing ever occur.
There’s a Right Way and a Wrong Way
Due to the various construction areas that the term “right of way” covers, as well as the regulations within the state/city/county of the contractor, it is important for you to follow the specifications of your permit and uphold any contractual obligations expected of your business.
Below you will find a list of common actions that can lead to disciplinary penalties and/or a claim on a Right of Way Bond:
- Poor workmanship
- Negligent behavior
- Disregard for standard procedures when it comes to the work performed (e.g. general construction regulations, building mandates, excavation provisions, etc.)
- Nonpayment of any permit or penalty fees due to the governing regulator
- Failure to complete the job up to permit regulations (e.g. within the designated timeline)
- Once construction has been completed, failure to restore the public right of way area to its original condition or a better condition
- Contractor abandons the project for no valid reason
- Failure to maintain and repair the public right of way area for the designated timeline (typically ranges from 30 days to one year) following the execution of the project
- Failure to repair damages caused to public or private property
Right of Way Bond Claim Process
Who Can File a Claim on a Right of Way Bond?
If the governing regulator (typically your local Public Works Department) is left to repair any damages or pay for any sort of clean-up once construction is done, they have a legal right to file a claim upon the Right of Way Bond. In addition, the surety bond generally covers damages caused to private property. If the contractor is responsible for such and is unwilling, unresponsive, or unable to resolve the problem, the harmed party may pursue civil action against the contractor which could result in a bond claim.
Are There Limits to Claim Filings?
Claims on a Right of Way Bond are limited in the amount that must be paid out by the surety provider (Jet) and by when a claim may be filed.
You’ll find that the amount of liability covered by a surety bond is represented by its limit (i.e. bond’s dollar amount). This bond limit is typically based on the construction contract total and/or what it would cost to repair the right of way area to its original condition. The regulator will provide the permit applicant with information on the necessary bond limit required.
A claim may be filed against a Right of Way Bond for violations performed during the bond’s active period and its cancellation period, if applicable.
In most cases, Right of Way Bonds cannot be cancelled prior to the regulator’s releases. Once the construction project has been finished and approved by the regulator the surety may cancel the bond. Oftentimes the surety company is not notified promptly and the bond will simply terminate upon its expiration date.
If you happen to have one of those rare Right of Way Bonds that can be cancelled early, the bond will likely be subject to a mandated cancellation provision that typically ranges from 30 to 90 days (whatever is stated on the physical bond form) which will, in turn, extend the liability to have a claim filed.
In addition, right of way permits often contain a requirement that the contractor is expected to maintain and repair the right of way area for a certain amount of time. As stated before, this can be for as little as 30 days or up to multiple years following the execution of the project. To put it simply, if the contractor fails to uphold its warranty or make contracted maintenance and repairs, a claim may be filed. Once this tail ends, no further claims may be brought against the bond.
What Would a Right of Way Bond Claim Look Like?
Let’s use an example that is likely to occur:
Bob is fairly new to the construction industry and his business has recently been granted a small contract bid with the city’s Public Works Department. This is a minor construction project for a sidewalk that is located within a public right of way along a residential street. The permit states that construction must be completed in a 30 day period, along with the provision that maintenance and repairs are expected of the contractor for one year following the execution of the project.
Bob rushes through the project a bit and does a poor job with the concrete. Once the job has been finished and finalized by a Department engineer, Bob soon forgets about the job and becomes busy with new construction projects.
Later on, the Department receives multiple complaints from local residents about cracked and crumbling concrete within the sidewalk that Bob had constructed months earlier.
Following a review of the complaints and investigation by a Department employee and determining that Bob's work needs to be repaired and he is contractually obligated.
Corrective Action Order/Judgment
A notice is sent to Bob that the sidewalk must be repaired within 30 days of the notification sent date. Bob is already in the middle of another construction project and doesn’t have the time or available resources to repair the sidewalk. In addition, Bob is set to make so much more money from his current construction bid, so he chooses to ignore the Department’s notice.
The Department does not hear back from Bob, even after several notices. Due to Bob violating multiple stipulations of his previous permit, the Department proceeds with penalty charges against his business and files a claim upon his Right of Way Permit Bond. An official claim notice is sent to Bob’s surety provider, Jet.
Once the notice is received by Jet, contact is made with Bob to go over the claims process and to request all available info and documentation regarding the alleged permit violation(s). Such details are needed for the Jet team’s own investigation of the matter.
Unfortunately for Bob, the Department supplied Jet with plenty of evidence that not only proves he violated his permit, but also ignored every chance possible to resolve the matter.
Because of this, Jet is obligated to pay the Department’s claim. Per the Right of Way Permit Bond form, Jet is legally obligated to pay claims up to its $10,000 limit (claim payouts will never exceed the bond amount). Funds from Bob’s bond will be used by the Department to hire a new contractor to complete the right of way project correctly.
Bob’s troubles are not over quite yet. Once Jet fulfilled the legally required claim payment, Bob is then expected to reimburse Jet. This reimbursement, known as indemnification, is required by all surety companies. Failure on Bob’s part to do so can lead to difficulties obtaining future surety bonds and permits within that jurisdiction.
Regulations tend to vary between each state, as well as every city and county jurisdiction, so Jet has provided past research completed on Right of Way Bonds and links to various legislative statutes/codes. Take a look at the chart below for further details.