When a business owner or individual is planning on using a subcontractor there is always a risk involved. Your business operations could be directly impacted and you will also experience a frustrating loss of money and time, if your subcontractor decides not to complete their specified job. However, there is now a very useful tool that is widely in use that will help to protect you when a subcontractor defaults. You could invest in Subcontractor Default Bonds in order to protect yourself no matter what. Subcontractor default insurance bonds provide much needed relief for contractors when a subcontractor has their contract terminated by default.
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The unique benefits are abundant compared to the traditional default process which will usually incur lengthy delays and lawsuits. When you request coverage you will receive a commitment by the general contractor and the company who is offering you the service, that they will take some responsibility in the event of a default. This only counts towards the portion related to completion of work, but will give peace of mind to all of the parties involved.
More About Subcontractor Default Insurance
At the moment general contractors could be held entirely responsible for missed payments and mistakes if a subcontractor defaults in performance. A professional and thorough subcontractor bond will reimburse the general contractor when this type of issue arises. The financial implications are significant, so it’s definitely worth investing in so that your organization can continue to succeed with a minimal amount of hassle.
You’re probably wondering whether subcontractor default insurance is a cheaper alternative, but the amount you pay is quite often lower than when you’re dealing with contract bonds such as performance and bid bonds. On the other hand you should be aware of all the costs involved when making your final decision. The general contractor and the carrier need to agree on the deductible that the contractor has to pay out before the policy will cover any claims. It is not uncommon for that figure to be quite high and it might even span up to $500,000. Alongside this, the general contractors will have to think about co-pay which is paid up to the retention aggregate. Usually this is around three to five times the deductible and is also the highest amount the insured contractor will ever have to pay for any impending claims.
Many contractors are worried about subcontractor retention and wonder if subcontractor default insurance is a viable alternative to subcontractor performance bond and the answer is, quite simply, no. When the general contractor as no decision but to declare a default, it is the contractor alone who can make a claim on the insurance policy. With performance bonds the owner has the right to make a claim, but that’s not the came when it comes to subcontractor default insurance. If the contractor doesn’t meet its deductible and chooses to file for bankruptcy, the owner, subcontractors and suppliers will be left with no other alternative.
You should be looking into performance bonds for construction related projects in the main. A performance bond is a legally binding tool in which a bonding company guarantees to a project owner than a contractor will meet all of the terms and conditions set out in a contract. Similarly, it also ensures that the project is completed within the time allowed at the agreed price. A performance bond is usually required by the project owner as a way of protecting themselves from financial loss, should their contractor fail to carry out their specified job as instructed.
It is a legal requirement to take out performance bonds on most public projects that are organized via states, counties and local boroughs. However, there are an increasing number of private companies requiring performance bonds including lenders, developers and commercial property owners. In other cases performance bonds are required by contractors of the subcontractors, especially those with larger stakes in a given projects. It is certainly a wise decision in order to protect your finances and reputation as a contractor.
Usually, projects are offered out to bid and are given to the lowest contractor who is in agreement with the terms. This will usually require bid bonds as it acts as a sense of security to the project owner that the chosen contractor will provide the correct tools and outcome of the entire project. When the contract is awarded a performance bond and a payment bond is necessary to be filed. It is true that construction is always an uncertain field of work, however performance bonds transfer the cost of this risk to the surety company. If a contractor were to fail during a project, the performance bond specifies that it’s the surety’s job to deal with the default and make sure the construction project is completed in its entirety.
If you are in need of a bid bond you can have peace of mind with Pinnacle Surety, as we offer a twenty four hour turnaround on bond program pre-qualifications and approval for bid bond. When you partner with Pinnacle Surety as a contractor you can maximize your bonding potential whilst maintaining a competitive premium rate. Bid bonds are implemented via licensed surety insurance companies and the bonding company acts as a third party during the process. Like with most legal disputes, not all bid bond claims need a bond pay out. When a contractor is able to provide a bid bond is reflects their positive qualification through a bonding company’s underwriting process. Bonding abilities give a contractor a wider avenue to pursue projects.
So when it comes to comparing and contrasting the different options, make sure you are aware of every single variable. All options are likely to help protect you in some way, but they are sure to add something different depending on your individual circumstances.
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