CA Practice question

[Yohai]

Hi,

If a contractor has a performance bond for 100% of the contract documents = 500,000 but the project costs is 1,000,000 , the contractor defaulted and no where to be seen. who pays the difference?

[Coach]

Why the discrepancy? If contract was executed and then COs increased the cost, bond should have also increased along the way.

[Yohai]

So the surety will pay the difference?

[Coach]

If additional premium was paid, yes. If not, no.