Surety Bonds – Part 3

In Part 2 of 3 on Surety Bonds, we covered how to obtain a bond, the costs, and how to track and manage them. If you missed this blog, here’s the link https://www.consolidatedinsurance.com/news/2022/11/surety-bonds-part-2/.

Now we come to our third and final blog on Surety and we’re going to focus on contractor failure and making claims.

Of course, many contractors and sub-contractors work well together and will go entire careers without ever having to deal with any kind of default on a Surety Bond. But in the rare instance that a subcontractor might fail, here are some reasons why:

  • Managerial Problems, such as frequent personnel changes, inadequate software systems, rapid over-expansion, poor project selection
  • Labor and Material Problems
  • Uncontrollable Factors like severe weather, job site conditions, unexpected economic failures
  • Financial signs such as tight cash flow, past due bills, vendors demanding cash on delivery
  • Business plan problems – no continency plans, goals, or objectives
  • Project Management problems – inadequate supervision, inability to collect on change orders, projects not completed on time, safety violations on the jobsite
  • Poor estimating
  • Communication problems between contractor and project owners

If you are the project owner and a default has occurred, first give the contractor time to cure the default. Otherwise, make sure you notify the Surety in writing and provide documents of the default.

If the surety company finds the contractor has defaulted they may assume responsibility by hiring another contractor to complete the work, provide trained workers and financial help for the original contractor, or reimburse the owner the amount needed to finish the project. If the investigation reveals that the contract is not in default, the surety company is not obligate to act.

Finally, establishing an in-house Bonding Policy is a great way to protect your company! For some more advice on Surety Bonding, please contact Consolidated Insurance + Risk Management today.