Performance Bond Guarantees Completion of Work

Our client, a municipality, has contracted with a builder to construct a service center. At the time of the contract award, the contractor presented evidence of a builders risk policy, a payment bond, and a performance bond. Half way through the project, (50 percent complete and the city had not accepted any part of the project), a lightning strike caught the building on fire, and it was destroyed. At the time of the loss it was discovered that the contractor had allowed the builders risk policy to lapse. The contractor did not have sufficient assets to complete the project in the absence of the builders risk coverage and abandoned the project.

Would the provider of the performance bond step in to complete the project under the terms of the contract, including the 50 percent of the structure that was destroyed by the fire but not insured since the builders risk had lapsed?